Chipping Away the Collateral Source Rule

Oct 31, 2016 | Featured, News

By Lance W. Thompson

On June 2, 2016, the Tennessee Court of Appeals decided a very important issue affecting Tennessee residents and personal injury awards. In Dedmon v. Steelman, the Court decided the issue of whether a plaintiff may introduce medical expenses at a non-discounted rate as opposed to medical expenses that were ultimately owed and due at a discounted rate. 2016 Tenn. App. LEXIS 386, 2016 WL 3219070 (Tenn. Ct. App. June 2, 2016).

In that case, the Court held that 1) the defendant is entitled to introduce evidence of the amount actually accepted by the medical care provider for the medical services provided to rebut the arguments made by the plaintiff that the amounts charged are reasonable medical expenses, and 2) is not only entitled to introduce the amount actually accepted by the medical care provider but that the jury then decides whether the amount charged as introduced by the plaintiff or the amount actually accepted as introduced by the defendant is reasonable medical bills under the facts of the case.

In August 2016, the case was appealed to the Tennessee Supreme Court. In Dedmon, the Honorable Joe G. Riley, concurring with the majority, explained in pertinent part as follows:

The non-discounted charges have become more fictional than actual. The implications of the issue before this Court in personal injury litigation are far-reaching. If we assume a plaintiff had a broken leg requiring hospitalization. According to the billing of the hospital, the amount reflected in its non-discounted billing was $40,000.

Assume further that the plaintiff was on Medicare, and the medical provider accepted $8,000 in full payment. This is very problematic depending upon the amount the plaintiff is entitled to use as a reasonable medical expense. Based upon experience, we can reasonably assume an $8,000 medical expense will ordinarily lead to a much lesser settlement or overall verdict than a $40,000 medical expense.

However, I believe that modern-day medical providers’ non-discounted charges generally dictate that the non-discounted charges are no longer reasonable medical expenses. The disparity between the non-discounted charges and what medical providers are willing to accept in full payment is a phenomenon primarily dictated by modern-day healthcare practices. It would appear this did not exist until relatively recently.

Dedmon, 2016 Tenn. App. LEXIS at, *34-38.

The issue is now before the Tennessee Supreme Court as to whether or not the discounted charges will become the reasonable amount that was actually owed to be presented to a jury.  Attorneys opposing the Dedmon decision claim that the jury should not hear evidence of the discounted amount because it identifies a collateral source.

On the contrary, it simply identifies the actual amount of damages incurred by the plaintiff that was owed, not who actually paid the bill. When defending this type of issue, the argument should be made that introducing the amount of what was owed does not identify a collateral source such as an insurance company that actually paid the bill at a discounted rate.

The Tennessee Supreme Court has two obvious options: 1) exclude all evidence of discounted charges and only allow evidence of the amount charged as the reasonable expense to present to a jury (this would overturn Dedmon); or 2) adopt the hybrid approach under Dedmon allowing both amounts to be introduced to the jury for the jury to decide what the reasonable amount of medical expenses was actually incurred.

The decision will likely be released sometime later in 2017. If Dedmon is upheld, it will probably influence a significant reduction in personal injury settlements and jury verdicts. Even if the Court upholds Dedmon or overrules it, the Tennessee legislature will likely address the issue at some point.


Lance is an associate attorney with Spicer Rudstrom PLLC. He works in the firm’s Nashville office as the lead attorney for research and writing, including dispositive motions and pretrial motions with an emphasis on appellate briefs for all of the firm’s attorneys. He works with American and international companies, providing them with in-depth analysis of often very convoluted issues arising under Tennessee law and surrounding jurisdictions.