Legislative Update—Legislation Introduced Will Allow Juries to See Evidence of Collateral Source Payments When Determining Medical Expenses in Personal Injury Cases.
The 2011-12 legislative session was a watershed when it came to the number of substantive civil liability reforms enacted into law. One bill that did not advance last session, however, was legislation sought by WDC dealing with the collateral source rule. The purpose of the legislation was to allow the finder of fact in personal injury cases to see both the amounts billed and the amounts paid when determining the “reasonable value of medical services” provided to the plaintiff. After negotiating with the Wisconsin Hospital Association and the Wisconsin Medical Society on language that all parties could agree upon, Rep. André Jacque (R-DePere) and Sen. Paul Farrow (R-Pewaukee) have now introduced legislation that will remove the collateral source rule for purposes of determining the reasonable value of medical services in all personal injury cases.
Assembly Bill 29/Senate Bill 22—Allowing the Finder of Fact to See Evidence of Collateral Source Payments
901.057 Collateral source payments and rights of subrogation. In actions for damages caused by personal injury or wrongful death that are not subject to s. 893.55 (7) or 893.555 (8), or seeking payment based on uninsured or underinsured motorists coverage, evidence of any compensation for bodily injury received from a source other than the defendant to compensate the claimant for the injury or to pay for medical expenses incurred by the claimant is admissible for the purpose of determining the reasonable value of the claim, including the reasonable value of the injured person's medical expenses. Evidence of the claimant's obligations of subrogation or reimbursement resulting from payments made by a source other than the defendant to compensate the claimant for injury is admissible. Evidence of amounts paid or incurred by the claimant in recovering a payment from a source other than the defendant is not admissible. Admission of evidence under this section does not limit the substantive or procedural rights of persons who have claims based upon subrogation or lien.
In addition to adding a new section to Chapter 901, AB 29/SB 22 amends Wis. Stat. § 908.03(6m)(bm) by striking out the word “not” in the second sentence:
908.03 (6m) (bm) Presumption. Billing statements or invoices that are patient health care records are presumed to state the reasonable value of the health care services provided and the health care services provided are presumed to be reasonable and necessary to the care of the patient. Any party attempting to rebut the presumption of the reasonable value of the health care services provided may
not present evidence of payments made or benefits conferred by collateral sources.
WDC originally sought to remove the presumption under s. 908.03(6m)(bm) altogether, but ultimately had to settle with the compromise language. Although the bill does not go as far as WDC would have preferred, it will still go a long way in allowing the defense to offer evidence of the amounts paid by collateral sources to determine the “reasonable value of medical services.” This is much better than current law, which prohibits the finder of fact from seeing any evidence of the amount actually paid by collateral sources.
AB 29/SB 22 Seeks to Overturn Numerous Wisconsin Supreme Court Decisions Applying the Collateral Source Rule.
A. Ellsworth v. Schelbrock (2000)
The first of the cases allowing plaintiffs in Wisconsin to recover the full amount of medical expenses billed, including amounts written off (“phantom damages”) is Ellsworth v. Schelbrock. In Ellsworth, the plaintiff was injured in an automobile accident and was hospitalized for months. She sued the negligent driver and the driver’s insurer. At trial, the plaintiff introduced evidence of the amount billed by her medical providers, which totaled $597,448.27. The defendant objected to the amount, arguing that only the amount actually paid ($354,941) by Medical Assistance to the medical providers should have been introduced as evidence. The trial court ruled that the amount billed ($597,448.27)—the sticker price—rather than the amount actually paid ($354,941) was the proper measure of the amount of past medical expenses.
The case was appealed to the Wisconsin Supreme Court, which upheld the lower court (4-3). Finding that the collateral source rule applies to medical assistance benefits, the defendant was not allowed to introduce evidence of the amount actually paid. Instead, the plaintiff could introduce the amount that was billed by the medical providers. The court reasoned that Wisconsin’s tort law “applies the collateral source rule as part of a policy seeking to ‘deter negligent conduct by placing the full cost of the wrongful conduct on the tortfeasor.’”
Former Justice Diane Sykes—who now sits on the United States Court of Appeals for the Seventh Circuit—dissented. Justice Sykes cited to a California Supreme Court decision that reached the opposite conclusion:
In tort actions damages are normally awarded for the purpose of compensating the plaintiff for injury suffered, i.e., restoring him as nearly as possible to his former position, or giving him some pecuniary equivalent.... The primary object of an award of damages in a civil action, and the fundamental principle of which it is based, are just compensation or indemnity for the loss or injury sustained by the complainant, and no more....
Applying the above principles, it follows that an award of damages for past medical expenses in excess of what the medical care and services actually cost constitutes overcompensation.
Thus, when the evidence shows a sum certain to have been paid or incurred for past medical care and services, whether by the plaintiff or by an independent source, that sum certain is the most the plaintiff may recover for that care despite the fact it may have been less than the prevailing market rate.
B. Koffman v. Leichtfuss (2001)—Contractual Write-offs Part I
Just a year later, the Wisconsin Supreme Court decided Koffman v. Leichtfuss, which held (5-2) that the collateral source rule applies to cases involving payments made by health insurers. Similar to Ellsworth, the plaintiff in Koffman was injured in an automobile accident and required medical treatment.
The total amount billed by the plaintiff’s health providers was $187,931.78. However, due to contractual relationships with the plaintiff’s health care providers, the insurance company received reduced rates and only paid $62,324 of the amount billed. Another $3,738.58 was paid by an insurance company and by the plaintiff personally, bringing the total amount of past medical expenses actually paid to $66,062.58.
During trial, the defendants moved to limit the evidence regarding medical expenses to the amounts actually paid ($66,062.58), rather than the amounts billed ($187,931.78). The trial court granted the defendant’s motion, and therefore ruled that the plaintiff was only entitled to the amount of medical expenses incurred ($66,062.58) rather than the full sticker price ($187,931.78).
The case was appealed to the Wisconsin Supreme Court, which reversed the trial court. Once again, the court held that the collateral source rule applied, even to “payments that have been reduced by contractual arrangements between insurers and health care providers.” The court reasoned that this “assures 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.” Justice Sykes again dissented, arguing that the “proper measure of medical damages is the amount reasonably and necessarily incurred for the care and treatment of the plaintiff’s injuries, not an artificial, higher amount based upon what the plaintiff might have incurred if he or she had a different sort of health plan or no health plan at all.”
C. Leitinger v. DBart (2007)—Contractual Write-offs Part II
In 2007, the Wisconsin Supreme Court decided Leitinger v. DBart, in which the plaintiff suffered injuries while working on a construction site. At trial, the parties argued over the reasonable value of the plaintiff’s medical services. The trial court allowed both parties to proffer evidence of the amount billed by the medical provider ($154,818.51) and the amount paid ($111,394.73) by the plaintiff’s health insurance company to prove the reasonable value of medical services. The trial court awarded plaintiff the amount his health insurance company actually paid for the medical treatment, not the sticker price.
On appeal, the Wisconsin Supreme Court held (5-2) that the “collateral source rule prohibits parties in a personal injury action from introducing evidence of the amount actually paid by the injured person’s health insurance company, a collateral source, for medical treatment rendered to prove the reasonable value of the medical treatment.” Justice Patience Roggensack, along with Justice David Prosser, Jr., dissented, arguing that the majority had “create[d] a new category of damages ... by unnecessarily expanding the evidentiary component of the collateral source rule to prohibit the jury from hearing what was actually paid to cover all of [plaintiff’s] medical care bills while admitting evidence of what was billed, even though no one will ever pay that amount.”
D. Orlowski v. State Farm Mutual Insurance Company (2012)—Underinsured Motorist Claims
The most recent decision on this issue is Orlowski v. State Farm Mutual Insurance Company, decided by the Wisconsin Supreme Court in 2012. The plaintiff (Linda Orlowski) was injured in an automobile accident caused by an underinsured driver. Orlowski recovered damages up to the limits of the underinsured driver’s insurance. Orlowski also had health insurance coverage which paid a portion of her medical expenses. In addition, Orlowski had an automobile insurance policy with State Farm Insurance, including underinsured motorist (UIM) coverage.
Orlowski submitted a claim to State Farm to recover under her UIM coverage. An arbitration panel awarded Orlowski $11,498.55 for the medical services provided to her as a result of the accident. This amount ($11,498.55) was the amount actually paid to the health care provider, rather than the full amount billed by the medical provider ($72,985.94).
The arbitration panel did not include in its award the amount of Orlowski’s medical expenses that had been written off by her medical provider as result of discounts through her health insurance coverage. The amount written off by the medical provider was $61,487.39. No one paid this amount. In his claim, the plaintiff was seeking the billed amount for the medical expenses, which included this written-off amount.
Orlowski appealed the arbitration panel’s decision to the circuit court, which modified the award. The judge awarded the plaintiff the full amount billed by the medical provider ($72,985.94), instead of the amount actually paid ($11,498.55). As a result, the plaintiff was awarded $61,487.39 in phantom damages.
Before the Wisconsin Supreme Court, the specific issue was whether the collateral source rule allowed the recovery of written-off medical expenses in a claim under an insured’s underinsured motorist coverage. The court reaffirmed its prior decisions that “an injured party is entitled to recover the reasonable value of medical services, which, under the operation of the collateral source rule, includes written-off medical expenses.” The court offered three public policy reasons for this holding: 1) to deter a tortfeasor’s negligence; 2) to fully compensate a plaintiff; and 3) to allow the insured to receive the benefit of the premiums for coverage that he or she purchased. Unlike the prior cases involving the same issue, none of the justices dissented.
AB 29/SB 22 Does Not Go As Far As Many Other State Laws or Court Decisions.
Assembly Bill 29/Senate Bill 22 does not go as far as numerous other state court decisions or statutes. For example, the California Supreme Court held in Howell v. Hamilton Meats and Provisions, Inc.,that the plaintiff was only entitled to the amount actually paid to the medical provider. According to the court, “an injured plaintiff whose medical expenses are paid through private insurance may recover as economic damages no more than the amounts paid by the plaintiff or his or her insurer for the medical services received or still owing at the time of the trial.” The court further explained that the “negotiated rate differential—the discount medical providers offer the insurer—is not a benefit provided to the plaintiff in compensation for his or her injuries and therefore does not come within the rule.” The Wisconsin bill instead is more analogous to a decision by the Ohio Supreme Court, which determined that the “jury may decide that the reasonable value of medical care is the amount originally billed, the amount the medical provider accepted as payment, or some amount in between.”
Wisconsin hopefully will soon join the many other states that have decided, either through the judicial system or the legislature, to prevent overcompensating plaintiffs in personal injury cases by allowing the jury to see all the evidence when determining the “reasonable value” of the plaintiff’s medical expenses.
 2000 WI 63, 235 Wis. 2d 678, 611 N.W.2d 764.
 Id., ¶ 7 (citing Am. Standard Ins. Co. v. Cleveland, 124 Wis. 2d 258, 264, 369 N.W.2d 168 (Ct. App. 1985)).
 Id., ¶ 29 (quoting Hanif v. Hous. Auth. of Yolo County, 246 Cal. Rptr. 192, 195-96 (1988)).
 2001 WI 111, 246 Wis. 2d 31, 630 N.W.2d 201.
 Id., ¶ 31.
 Id., ¶ 69.
 2007 WI 84, 302 Wis. 2d 110, 736 N.W.2d 1.
 Id., ¶ 7.
 Id., ¶ 96.
 2012 WI 21, ¶ 4, 339 Wis. 2d 1, 810 N.W.2d 775.
 Id., ¶ 4.
 Id., ¶ 18.
 257 P.3d 1130 (Cal. 2011).
 Robinson v. Bates, 857 N.E.2d 1195 (Ohio 2006).