Kristi Wright discusses the ways that your billing practices may impact payouts in cases of plaintiff's verdicts during medical malpractice cases.

Healthcare prices in the United States have risen significantly over the years, becoming a major source of concern for many Americans. This is nothing new, and doctors and patients alike have felt the effects of this shift. However, something that’s not discussed as often is the effect that billed charges have on jury sentiment, and therefore, malpractice verdicts.  

What’s the issue? 

Practices understandably want to ensure that they’re optimizing fees received from health insurance companies, but they may not realize that these efforts could also increase the economic damages claimed by plaintiffs against the practice in a malpractice case.  

It may be customary to bill at 200–300% of Medicare rates to ensure that a practice recovers the max allowable by health insurers; however, in many states, the billed amounts (not the amounts paid to the practice) are what plaintiffs’ attorneys put in front of a jury as the economic damages claimed. Oftentimes, these states have what’s called the “collateral source” rule, a guideline that generally prohibits the admission of evidence that the plaintiff has received compensation from another source, such as health insurance, to keep the defendant(s) from benefitting from payments made by others. That means that the entire billed amounts are put in front of jurors in those states, even though those amounts are never actually paid to the practice and the majority is written off.  As a result, the evidence reflecting the difference between the dollars billed and paid is often referred to as “phantom damages.” 

In one recent case, a practice was charging approximately 500% of Medicare rates, and for some services even more. The total billed for the plaintiff’s treatment was nearly $1M for relatively straight-forward procedures, and the total paid by health insurance was approximately $200,000. Given that the lawsuit was in a collateral source state, the plaintiff was permitted to present evidence of $1M in medical bills to the jury as the damages.. The plaintiff’s attorney used these phantom amounts to argue that the practice was profit-motivated and not acting in the best interest of the patient. Unfortunately, the jury found for the plaintiff and used the amount billed as the basis for their award. 

What are the rules in my state? 

Florida, Georgia, Maryland, South Carolina and Virginia all follow the collateral source rule, so billed fees and charges (phantom damages) are presented to the jury as economic damages.  

Delaware follows the collateral source rule when bills were paid by private insurers; however, if the bills are paid by Medicare or Medicaid only the paid amounts would be considered. 

In New Jersey, a plaintiff cannot collect on medical bills reimbursed by a first party medical insurance carrier. However, ERISA plans, Medicare, and Medicaid are excluded.  

North Carolina claims are subject to evidentiary Rule 414, which limits evidence to prove past medical expenses to evidence of the amounts actually paid, or required to be paid, to satisfy the bill. Under this rule, plaintiffs cannot seek the amount billed for medical expenses where those expenses have been negotiated down by the plaintiff’s health insurer or written off by the provider.  

In Pennsylvania, medical bills that have been paid by insurance are not recoverable; liens/medical expenses paid by an ERISA health plan or Medicare/Medicaid (DPW) are admissible or recoverable.  

What can be done? 

Practice leaders should be cognizant that optimizing fee schedules to maximize reimbursement may impact (and increase) damages plaintiffs can allege and recover in medical malpractice actions. Payers are constantly changing payment terms, so considering all relevant factors can be a moving target that deserves regular and periodic monitoring.