Opinion ID: 2380393
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Heading Rank: 4

Heading: The Contract Clause and Tucker's Insurance Policy

Text: Because Tucker was indemnified for the entire amount of medical services billed against him as a result of the health insurance contract that he had purchased, his case falls squarely within the contract clause in section 13-21-111.6. Tucker therefore gets the benefit of the collateral source rule. The benefits from his Aetna policy, including the healthcare provider discounts, are from a collateral source, and the tortfeasor, VOA, may not use them to reduce its liability. Tucker's healthcare providers billed $74,242 for their services in treating his injuries. Because Tucker had purchased a health insurance policy, his insurance company, Aetna, satisfied his medical debts with a payment of $43,236. Moreover, Tucker's purchase of insurance meant that he could not be billed the difference between the amounts billed by his healthcare providers and his insurer's actual payments. See § 10-16-705(3), C.R.S. (2010) (Every contract between a carrier and a participating provider shall set forth a hold harmless provision specifying that covered persons shall, in no circumstances, be liable for money owed to participating providers by the plan and that in no event shall a participating provider collect or attempt to collect from a covered person any money owed to the provider by the carrier. Nothing in this section shall prohibit a participating provider from collecting coinsurance, deductibles, or copayments as specifically provided in the covered person's contract with the managed care plan.). By agreeing to a provider contract with Aetna and accepting payment on Tucker's behalf, the healthcare providers gave up the right to seek compensation from Tucker for the amount billed. Tucker was thereby fully indemnified for the medical expenses that he incurred as a result of the tort committed against him. The write offs required of Tucker's medical providers arose out of a contractual agreement between Tucker and a third party, i.e., the insurance company that negotiated the discounts. If Tucker had not been insured, the write offs would not have been applied to his medical bills and he would have been responsible for the billed amount. Thus, the write offs are as much of a benefit for which [a plaintiff] paid consideration as are the actual cash payments by his health insurance carrier to the health care providers. Acuar, 531 S.E.2d at 322-23. The collateral source rule prevents VOA from standing in Tucker's shoes and enjoying the same discounted medical rates as his insurance company receives. To hold otherwise is to allow the tortfeasor to receive a windfall in the amount of the benefit conferred to the plaintiff from a source collateral to the tortfeasor. Pipkins v. TA Operating Corp., 466 F.Supp.2d 1255 (D.N.M.2006). The General Assembly wrote the contract clause to preserve the common law collateral source rule and prevent a windfall to a tortfeasor when a plaintiff received benefits arising out of the plaintiff's contract. By retaining the collateral source rule through the contract clause, the General Assembly avoided this unjust result. We reject VOA's arguments to the contrary. VOA contends that the contract clause of section 13-21-111.6 includes only the amount that Aetna actually paid to Tucker's healthcare providers. VOA argues that it is entitled to benefit from the $31,006 in savings from Tucker's insurance and offset these savings to its benefit. First, VOA contends that the medical discounts negotiated between insurers and healthcare providers are not contracts that are entered into and paid for by or on behalf of covered plaintiffs, and therefore do not come within the ambit of the contract clause. Instead, asserts VOA, insurers and healthcare providers enter into discounted pricing agreements only for their mutual benefit. Because Tucker was not an intended beneficiary of this agreement between Aetna and Tucker's healthcare providers, VOA argues that the first clause of section 13-21-111.6 applies and he may not benefit from the collateral source rule. We reject this contention. The salient contract is the contract between Tucker and his insurance company, which gave rise to the discounted medical care pricing that VOA seeks to use in limiting its tort liability. Tucker's healthcare providers' write offs or discounts are a direct result of an insurance contract that Tucker entered into and paid for on his behalf. Moreover, write offs or pricing contracts inure to the benefit of the insurance company, the healthcare provider, and the covered plaintiff. The health insurance company's primary purpose is to attract and retain customers. The insurance company seeks and obtains write offs or pricing contracts from healthcare providers in order to attract consumers based on a lower price for premiums. In addition to increasing the insurance company's customer base, such write offs or pricing contracts inure to the benefit of insured persons like Tucker by reducing the rate of health insurance premiums. The healthcare providers benefit as well, in part by expanding their patient base. There are many reasons why insurance companies and healthcare providers enter into contracts that discount the full amount charged by the providers. For example, the insurance company's ability to pay a large volume of claims promptly may be attractive to providers seeking to minimize the cost of collections and bad claims. The provider may also be interested in having access to a larger pool of patients who have health insurance coverage. See Crossgrove, 2010 WL 2521744, at ; see also Stanley v. Walker, 906 N.E.2d 852, 863-64 (Ind.2009) (Dickson, J., dissenting) (discussing reasons for discounted healthcare fee arrangements between healthcare providers and insurers). By paying health insurance premiums, insured plaintiffs like Tucker gain access to a pool of providers who will not erect barriers to his receipt of medical care based on his ability to pay. Because the interests of the insurance company, the insured, and the healthcare provider are intertwined, it is an inaccurate oversimplification to assert that Tucker's insurer and healthcare providers entered into the write off contracts only to serve their own ends and not on Tucker's behalf. The contract between Tucker's insurance company and providers operates, at least in part, to his benefit. More importantly, the discounted medical rates paid by his insurance company are a direct result of his health insurance contract, and therefore VOA may not claim these discounts to reduce its liability for the medical care that he received. Second, VOA asserts that the healthcare provider discounts do not fall within the contract clause because they do not constitute a benefit paid. VOA contends that the pricing differential between the amounts billed and the amounts paid is illusory because the charges are never actually paid by anyone. VOA also argues that because Tucker was prohibited from being legally liable for the difference between the amounts billed by his providers and the amount paid by his insurance company, he was not directly benefited by his insurance company's pricing contract. However, by discharging Tucker's obligations to his medical providers, the insurer's remittances do constitute a benefit that was paid. If Tucker had not had insurance coverage, he would have been liable for the entire amount billed or he may not have been treated at all. See Trevino v. HHL Financial Services, Inc., 945 P.2d 1345, 1350 (Colo. 1997) (When a hospital treats a patient's injuries, it has an enforceable claim for full payment for its services, regardless of the patient's financial status.). Because he was insured, his medical providers wrote off part of the value of the medical services that they provided because they were contractually obligated to do so. See Acuar, 531 S.E.2d at 322-23; see also Lopez v. Safeway Stores, Inc., 212 Ariz. 198, 129 P.3d 487, 495 (Ariz.Ct.App.2006) (holding that under the collateral source rule, the plaintiff is entitled to claim and recover the full amount of her reasonable medical expenses for which she was charged, without any reduction for the amounts apparently written off by her healthcare providers pursuant to the contractually agreed-upon rates with her medical insurance carriers). Because this is a benefit paid for by Tucker through the payment of his health insurance premiums, co-payments, and deductibles, it should not be deducted from his award. See Van Waters, 840 P.2d at 1078 n. 5 (examining the legislative history of section 13-21-111.6 and quoting Senator Meiklejohn's comment that things that [a plaintiff] is paying for one way or the other ... ought [not] be deducted from a judgment). [5] We recognize that there may be a disparity between the cost of medical services that are billed to a consumer and the amounts that are actually paid by insurance companies. It can be tempting to treat the discounted amounts as being a truer reflection of a plaintiff's damages. However, the write offs reflect the negotiating power of Tucker's insurer and its successful leverage in requiring providers to accept discounted reimbursement: Although discounting of medical bills is a common practice in modern healthcare, it is a consequence of the power wielded by those entities, such as insurance companies, employers and governmental bodies, who pay the bills. While large consumers of healthcare such as insurance companies can negotiate favorable rates, those who are uninsured are often charged the full, undiscounted price. In other words, simply because medical bills are often discounted does not mean that the plaintiff is not obligated to pay the billed amount. Defendants may, if they choose, dispute the amount billed as unreasonable, but it does not become so merely because plaintiff's insurance company was able to negotiate a lesser charge. Arthur v. Catour, 345 Ill.App.3d 804, 281 Ill.Dec. 243, 803 N.E.2d 647, 649 (2004) (under the collateral source rule, the plaintiff's damages are not limited to the amount paid by her insurer, but may extend to the entire amount billed, provided those charges are reasonable expenses of necessary medical care). Furthermore, the trial setting is the proper forum for the parties to present evidence regarding the proper value of an injured plaintiff's damages. As noted above, the trial transcript is not before us but VOA conceded at oral argument that it chose not to contest the valuation of Tucker's medical benefits because the trial court had ruled in limine that it would apply an offset under section 13-21-111.6. The jury determined Tucker's damages award accordingly. It is unwarranted speculation to substitute Aetna's discounted healthcare provider rates for the jury's determination regarding the reasonable value of the medical services rendered to Tucker. We also reject VOA's contention that, contrary to the collateral source rule and the contract clause, a plaintiff's investment in his own insurance should operate to the benefit of the plaintiff's tortfeasor. Crediting VOA with the healthcare discounts paid for by Tucker's independently purchased health insurance would in effect penalize Tucker for his foresight in purchasing health insurance. Indeed, limiting Tucker to recovery only of his healthcare provider's discounted rates would under-compensate Tucker because he would receive no reimbursement for the premiums, co-payments, and deductibles that he has paid in obtaining and maintaining his health insurance. This does not comport with the legislature's enactment of the contract clause or the interpretation of section 13-21-111.6 in Van Waters. Although the General Assembly was concerned about reducing tort awards and eliminating double recovery in some senses, the legislature would have eliminated the collateral source rule entirely if this had been its only concern. The General Assembly did not go that far. Instead, it chose to allow a plaintiff to obtain the benefit of his contract, even if the award resulted in a double recovery. This is consistent with the common law position that it is more repugnant to shift the benefits of the plaintiff's insurance contract to the tortfeasor in the form of reduced liability when the tortfeasor paid nothing toward the health insurance benefits. Moreover, the General Assembly was also concerned about fairness in damages awards. See Van Waters, 840 P.2d at 1078 n. 5 (examining the legislative history of section 13-21-111.6 and quoting Senator Meiklejohn's comment that [t]here's something unfair about me getting killed and my wife suing somebody and collecting, my insurance pays off and that goes as a credit against the judgment). Crediting the financial windfall arising from Aetna's discounted rates to the injured plaintiff is consistent with the principles of the collateral source rule. See Acuar, 531 S.E.2d at 322 (The focus is not whether an injured party has `incurred' certain medical expenses. Rather, it is whether a tort victim has received benefits from a collateral source that cannot be used to reduce the amount of damages owed by a tortfeasor.). This point is made by the court in Hardi v. Mezzanotte: [A] private insurance carrier paid [plaintiff's] medical expenses. That source is wholly independent of [the tortfeasors]. Because any write-offs conferred would have been a byproduct of the insurance contract secured by [plaintiff], even those amounts should be counted as damages. Therefore, because any write-offs enjoyed by [plaintiff] were negotiated by her private insurance company, a source independent of [the tortfeasors], they should be included in her damages. Under the collateral source rule, she is entitled to all benefits resulting from her contract. 818 A.2d 974, 985 (D.C.2003) (internal citations omitted). It is unjust to transfer the financial benefits of purchasing and maintaining health insurance to the tortfeasor, and the General Assembly's contract exception avoids this result. See also Van Waters, 840 P.2d at 1078 (the legislative history shows [ ] an intent not to deny a plaintiff compensation to which he is entitled by virtue of a contract that either he, or someone on his behalf, entered into and paid for with the expectation of receiving the consequent benefits at some point in the future). Our holding is consistent with the statutory contract clause and the rationale of the collateral source rule, which reject the notion that a tortfeasor may draw on sources wholly collateral to itself to reduce the compensation owed to the injured plaintiff. This result is also consistent with the principle that statutes in derogation of the common law are to be construed narrowly. Here, the write offs that Tucker's healthcare providers applied to his medical bills were a direct result of the benefits negotiated by his health insurance company, which is a source independent of the tortfeasor. See Hardi, 818 A.2d at 985. Therefore, VOA may not receive any consideration or benefit from the write off or discount provisions of Tucker's health care contract.