Leitinger and the Collateral Source Rule: Time for a Change

WDC Journal Edition: Winter 2007
By: Lawrence J. Drabot and Daniel K. Mullin* - Crivello, Carlson & Mentkowski S.C.

An injured party is entitled to recover the reasonable value of medical services caused by the wrongful act of another person. McLaughlin v. Chicago, M. S. P. & P. R. Co., 31 Wis. 2d 378, 143 N.W.2d 32 (1966). Traditionally, a defendant could challenge the amount of medical expenses sought by the plaintiff by contesting: (1) the reasonable value of the medical services provided; and (2) the causal relationship between the conduct of the defendant and the harm suffered by the plaintiff requiring those services. In Leitinger v. DBart, Inc., 2007 WI 84, __ Wis. 2d __, __ N.W.2d __, 2007 WL 1892569, the Supreme Court of Wisconsin reduced the effectiveness of these techniques, while increasing the burden on a defendant to contest damages. The Court affirmed the Court of Appeals’ decision holding that defendants could not introduce evidence of the amount actually paid by a plaintiff’s health insurance company as a means of contesting the reasonable value of the medical services provided.

Leitinger was injured in a construction accident, and he was billed $154,818.51 for the medical services he received. Leitinger’s health insurance actually paid $111,394.73. Prior to trial, Leitinger sought to prohibit the defendant from introducing the amount actually paid by Leitinger’s health insurance as evidence of the reasonable value of the medical services provided. The trial court denied Leitinger’s motion. The two parties stipulated, for the purposes of the trial, that the reasonable value of the medical services was the amount paid, but Leitinger reserved the right to appeal the admissibility of the amount paid. In turn, the defendant agreed that if the evidence was rendered inadmissible on appeal, the amount billed would be the reasonable value of the treatment provided.

At trial, the defendant introduced the amount actually paid by the insurance company as evidence of the reasonable value of the medical services provided to Leitinger, and the jury reached a verdict for Leitinger which included $111,394.73, the amount paid for the medical services. Neither party presented expert testimony as to the reasonableness of the amounts billed or the amounts paid. After the trial, Leitinger renewed his motion to exclude the amount paid as the reasonable value of the medical services provided and appealed the decision after the trial court denied his motion.

Relying heavily on Koffman v. Leichtfuss, 2001 WI 111, 246 Wis. 2d 31, 630 N.W.2d 201, the Wisconsin Court of Appeals overruled the trial court and held that the amount paid may not be introduced as evidence of the reasonable value of medical services received because the actual amount paid by insurance companies pursuant to health care finance arrangements is considered a collateral source; therefore, the payments are inadmissible. Leitinger v. Van Buren Management, 295 Wis. 2d 372, 720 N.W.2d 152 (2006).[i] The Court held that a defendant must offer evidence other than the amount actually paid by an insurance company to contest the reasonable value of the services provided. The Court suggested that defendants, rather than relying on the amount paid for the medical services, should introduce experts to testify as to the reasonable value of the services provided.

The Leitinger court held that the collateral source rule is both a rule of damages and a rule of evidence. As a rule of damages, the collateral source rule furthers a policy of protecting plaintiffs to allow full recovery for all damages for which a tortfeasor is legally responsible. As a rule of evidence, the collateral source rule excludes from evidence the amounts paid to an injured party from a non-tortfeasor to quell the fear that the jury will be misled and confused, and that the jury’s judgment may be unfavorable towards the plaintiff. The Court reasoned that allowing evidence of the collateral source payment, even for the purposes of questioning the reasonableness of medical expenses, would ultimately benefit the tortfeasor, which is inconsistent with the purpose of the rule.

The Court also justified its holding by stating that barring evidence of the collateral source payment “ensures that liability of similarly situated defendants is not dependent upon the relative fortuity of the manner in which each plaintiff’s medical expenses are financed.” 2007 WI 84, ¶ 32. In following Koffman, the Court concluded that the plaintiff in this case, like the plaintiff in Koffman, was entitled to recover the reasonable value of medical services provided, not only for the expenditures actually made, and that the tortfeasor should not benefit from the negotiated discount rates between an insurer and the medical provider.

Justice Roggensack’s cogent dissenting opinion stressed three points that the majority seemingly disregarded: (1) the recovery of damages greater than the amount paid are no longer compensatory damages, as they are above the amount that makes the plaintiff whole; (2) the relevancy of the evidence should not turn on who paid the medical bills, but rather on the relationship between the amount paid and the value of the medical services received; and (3) the jury’s role as a fact-finding body has been “usurped” by hiding relevant evidence and presenting misleading evidence by implying that amounts billed for medical expenses reflect the actual cost. Id. at ¶ 78.

The dissent points out that the collateral source rule does, in fact, provide a windfall to the plaintiff as the healthcare provider “writes off” the difference between the amount billed and the amount paid, and the money awarded by the jury that is over and above the amount paid does not go to compensate the healthcare provider, the party who has taken the loss. Additionally, the dissent rightfully reminds us that the only times an amount awarded should be greater than those that would compensate the plaintiff are when punitive damages are awarded or when a statute provides that a jury may award damages greater than an amount that would make the plaintiff whole. The majority allowed the plaintiff a “double recovery” under the collateral source rule, but as the dissent pointed out, the authority upon which the majority relied – Dobbs Law of Remedies: Damages, Equity & Restitution – supports just the opposite proposition.

Justice Roggensack also asserts that it makes little sense that the admissibility of evidence should hinge on the party who pays for the medical care. The majority’s opinion, according to the dissent, will produce inconsistent evidentiary rulings that will ultimately lead to an unlevel playing field. In every case the plaintiff will be permitted to introduce evidence of the amount billed, while the evidence that the defendant may introduce depends on who paid the medical bills. Underscoring the entire issue is the presumption that the amount billed for medical services is an indicator of the reasonable value of medical services, a presumption the dissent suggests that may not be well founded.

Finally, with respect to the juror’s role as a fact-finding body, the dissent stresses that it seems only fair that both side should be able to introduce the amounts billed and paid as competing evidence of the reasonable value of the medical services provided and have experts debate the relationship between healthcare finance arrangements and the reasonable value of medical services. By admitting both the amount billed and the amount paid into evidence, coupled with competing expert testimony, the playing field would be level for both sides, and the jury is then in the best position to determine the reasonable value of the medical services.

Based on Leitinger, a defendant may challenge the reasonable value of medical services that an injured party is entitled to recover, but must proffer expert testimony as to the reasonable value of those services, rather than rely on the amount actually paid for those services. This decision places a tremendous and unreasonable burden on the defendant to contest medical damages. While such a requirement is not new or novel, the Court’s decision continues the myth that the amount billed is reasonable even though it is unlikely that the full amount will ever be paid to the provider or will ever be paid by the plaintiff.

Often a subrogated party, usually a health insurance company, approaches the primary parties requesting a stipulation as to the amounts it paid and the necessity and reasonableness of those amounts, further requesting that it be excused from participating in the trial in exchange for abiding by the jury’s verdict. Based on Leitinger, what incentive is there for such a stipulation? A defendant will be more inclined to force a subrogated party to participate in the trial so that a jury will receive testimony of the insurance coverage, the amounts of the medical bills, the amounts it paid, why there is a difference in those amounts, and what happens to that difference. Then, a jury will have evidence before it to decide what medical expenses are necessary and reasonable. This will complicate and lengthen trials, only to accomplish indirectly that which could be accomplished directly and in a much simpler and efficient manner.

As the dissent discusses, the admissibility of evidence should not be governed based on which party paid a certain expense, but rather upon whether it is relevant and material to the issue at hand. Furthermore, the collateral source rule does not penalize a plaintiff or reward a defendant in a situation where the reasonableness of medical bills is at issue. If the plaintiff has paid additional amounts above those paid by the collateral source, or is required to pay additional amounts, then those damages may be recovered as well. But to allow recovery for an amount that will never be recovered by anyone, or for which the plaintiff will not be asked to repay is not only a windfall, but it is a windfall based upon a falsehood. If a plaintiff is allowed to recover the amount billed, then a defendant should be allowed to introduce evidence of what was actually paid, and then it should be within the province of the jury to decide what is reasonable.

Hiding behind the collateral source rule, the Leitinger court performs what amounts to legal alchemy – it deems an amount billed as proof of reasonableness while ignoring the reality that a lesser amount has actually been paid to satisfy that bill, all while ignoring relevant and material evidence, and depriving the jury of exercising its authority and responsibility.

The decision in Leitinger is troubling, as the Supreme Court of Wisconsin has apparently usurped the power of the jury by limiting relevant evidence available to it. The courts should take another look at the issue of evidence necessary to prove or contest the reasonableness of medical expenses. The collateral source rule should not be used to perpetuate a fallacy that an amount billed is reasonable when a lesser amount is paid and the plaintiff will not be responsible for the difference.

Lawrence J. Drabot is a shareholder at Crivello Carlson & Mentkowski S.C. in Milwaukee. He concentrates his practice in the areas of product liability, construction litigation, motor vehicle accidents and premises liability, as well as insurance coverage disputes. He earned his B.A. from the University of Notre Dame, and his J.D. from The John Marshall Law School, Chicago. Mr. Drabot is licensed in Illinois and Wisconsin.

* Daniel K. Mullin is a third year law student at Marquette University Law School and a summer law clerk at Crivello, Carlson & Mentkowski, S.C.

[i] The collateral source rule essentially prohibits the reduction of the payments or benefits to which an injured party is entitled simply because payments were made on the plaintiff’s behalf or to the plaintiff gratuitously from a party not liable to the plaintiff. Koffman, 2001 WI 11, ¶ 29. The policy behind the rule is that it is more appropriate for the injured party to benefit from the gratuity of a third person rather than the person who caused the injury. Id. Stated differently, the tortfeasor’s legal obligation to the injured person is not relieved because of the gratuity of a third person or because of the injured person’s foresight to arrange the payment of benefits in the event of an injury. Id. (citing Ellsworth v. Schelbrock, 2000 WI 63, ¶ 7, 235 Wis. 2d 678, 611 N.W.2d 764).