Rhetoric, Reality, and the Wrongful Abrogation of the Collateral Source Rule in Personal Injury Cases

Nearly every state has addressed the issue of whether the negotiated rate differential should be considered a collateral source benefit and thus an injured plaintiff should be allowed to collect that entire amount as economic damages, or whether a plaintiff should be limited to recover only the amount the medical provider actually accepted from the plaintiff’s health insurer in full satisfaction of the bills. Nevertheless, there is considerable disparity among the states regarding the application of the collateral source rule in these situations. The one consistency is the rhetorical theme advanced by defendants that the health care providers’ bills are illusory — having no consequences in reality — and that the plaintiff’s recovery of those billed costs would be a windfall gain. Some jurisdictions consider the negotiated rate differential a collateral source benefit and apply the common-law collateral source rule. In some of these states the legislature has confirmed the applicability of the collateral source rule to these medical bills that were satisfied by write-offs and payments by plaintiff’s private health insurance in personal injury cases. In other states, however, the legislatures have passed tort reform legislation that has modified or abolished the collateral source rule in personal injury cases and has limited economic damages to the amount the medical care provider accepted from the plaintiff’s health care insurer as satisfaction for the medical bills. A review of these legislative hearings reveals a recurring effort by liability insurance carriers to influence legislatures to consider actual medical bills as misleading assessments of a plaintiff’s damages, and to recognize economic recovery in excess of a health care insurer’s payment as a windfall. While persuasion through skillful choice of language is a routine and revered tool in the practice of law, when, because of use and repetition, misleading rhetoric is relied upon by courts and legislatures as fact, the resulting rule of law is flawed. Part I of this Article explores the unsavory legal and social implications of the terms windfall and illusory and the persuasive nature of these labels on courts, legislatures, and society. I then survey state appellate court decisions that address the issue of whether the negotiated rate differential is a collateral source benefit that should offset a plaintiff’s recovery in personal injury cases, highlighting evidence of the rhetorical themes of labeling the plaintiff’s medical bills as illusory or the plaintiff’s recovery as a windfall to demonstrate that this pronounced strategy is commonly embedded in appellate court opinions. I also examine legislative notes and hearings to demonstrate that this same rhetoric is influencing how legislators think about the issue and respond to rulings of the judiciary applying the collateral source rule to personal injury recovery. In Part II of this Article, I examine the logical fallacies of using the terms illusory and windfall to frame an injured plaintiff’s health care bills and the recovery of that amount to support abolition of the collateral source rule in personal injury cases. I argue that despite this repeated rhetoric, medical care provider’s bills are not illusory; those bills are real and a plaintiff’s recovery of the amount billed by a health care provider is not a windfall, but rather it is a return on a prudent investment obtained through foresight and diligence by the plaintiff, one that society should want to encourage. Part III of this Article examines the tension between the legislature and the judiciary regarding the application of the collateral source rule to a plaintiff’s recovery of the negotiated rate differential in personal injury cases. What emerges is evidence that a body of law is being created based in part on the implications of these labels, rather than reality. This rhetoric is influencing courts and legislatures to wrongly abrogate the collateral source rule as it applies in personal injury cases. I conclude that the negotiated rate differential is a collateral source benefit to a privately insured plaintiff and, applying the collateral source rule, economic damages, including the reasonable value of medical services, should be calculated by the amount charged by the health care provider. Neither the judiciary nor the legislature should abolish the collateral source rule in this context based on false notions that the medical bills are illusory or that plaintiffs will be recovering windfalls. This conclusion acknowledges the need for legislative and judicial safeguards to ensure that health care providers are not engaging in fraudulent pricing schemes aimed at gouging liability insurers and appreciates the realities of personal injury recovery. This conclusion also recognizes that persuasion though skillful word choice is a common and respected practice among lawyers. Nevertheless, when inflammatory labels are repeated so regularly that they gain a legitimacy that is relied upon by courts and legislatures, the terminology should be reexamined to ensure that rules of law are not, as here, being supported on rhetoric alone.