Haygood v. De Escabedo

• Decision Date: 27 January 2012
• Docket Number: No. 09–0377.,09–0377.
• Citation: 54 Tex. Sup. Ct. J. 1377,356 S.W.3d 390
• Parties: Aaron Glenn HAYGOOD, Petitioner, v. Margarita Garza DE ESCABEDO, Respondent.
• Court: Texas Supreme Court

356 S.W.3d 390

54 Tex. Sup. Ct. J. 1377

Aaron Glenn HAYGOOD, Petitioner,

v.Margarita Garza DE ESCABEDO, Respondent.

No. 09–0377.

Supreme Court of Texas.

Argued Sept. 16, 2010.Delivered July 1, 2011.Rehearing Denied Jan. 27, 2012.

Ronald J. Schaeffer, Law Office of Ronald J. Schaeffer, Lufkin, Peter M. Kelly, Kelly Durham & Pittard LLP, Houston, for Aaron Glen Haygood.

Frank Gerhardt Cawley, Whitehurst & Cawley, L.L.P., Addison, for Margarita Garza.

Levon G. Hovnatanian, Martin Disiere Jefferson & Wisdom LLP, for amicus curiae American Insurance Association.Warren Szutse Huang, Fulbright & Jaworski L.L.P., Houston, Gregory D. Smith, Ramey and Flock, P.C., Tyler, for amicus curiae National Association of Mutual Insurance Companies.J. Mitchell Smith, Germer Gertz, L.L.P., Beaumont, for amicus curiae Texas Association of Defence Counsel.Michael A. Choyke, Wright & Close, LLP, Houston, for amicus curiae Univar USA Inc.Kirk L. Pittard, Kelly Durham & Pittard, LLP, Dallas, for amicus curiae The Texas Trial Lawyers Association.Diana L. Faust, Cooper & Scully, P.C., Dallas, for amicus curiae Texas Alliance for Patient Access.Justice HECHT delivered the opinion of the Court, in which Chief Justice JEFFERSON, Justice WAINWRIGHT, Justice GREEN, Justice JOHNSON, Justice WILLETT, and Justice GUZMAN joined.

Damages for wrongful personal injury include the reasonable expenses for necessary medical care, but it has become increasingly difficult to determine what expenses are reasonable. Health care providers set charges they maintain are reasonable while agreeing to reimbursement at much lower rates determined by insurers to be reasonable, resulting in great disparities between amounts billed and payments accepted. Section 41.0105 of the Texas Civil Practice and Remedies Code, enacted in 2003 as part of a wide-ranging package of tort-reform measures,¹ provides that “recovery of medical or health care expenses incurred is limited to the amount actually paid or incurred by or on behalf of the claimant.” ² We agree with the court of appeals ³ that this statute limits recovery, and consequently the evidence at trial, to expenses that the provider has a legal right to be paid.

I

Aaron Glenn Haygood sued Margarita Garza De Escabedo for injuries he sustained when the car he was driving collided with Escabedo's minivan as she was pulling out of a grocery store parking lot. Haygood's injuries required surgeries on his neck and shoulder. Both were successful, but some impairment remains.

Twelve health care providers billed Haygood a total of $110,069.12, but he was covered by Medicare Part B, which generally “pays no more for ... medical and other health services than the ‘reasonable charge’ for such service.”⁴ Criteria for determining reasonable charges include customary charges for similar services and prevailing charges in the same locality for similar services.⁵ Federal law prohibits health care providers who agree to treat Medicare patients from charging more than Medicare has determined to be reasonable.⁶ Accordingly Haygood's health care providers adjusted their bills with credits of $82,329.69, leaving a total of $27,739.43. At the time of trial, $13,257.41 had been paid, and $14,482.02 was due.⁷

Invoking section 41.0105, Escabedo moved to exclude evidence of medical expenses other than those paid or owed. Haygood, asserting the collateral source rule, moved to exclude evidence of any amounts other than those billed, and of any adjustments and payments. The trial court denied Escabedo's motion and granted Haygood's. At trial, Haygood offered evidence from each of his health care providers that the charges billed were reasonable and the services necessary. The jury found that Escabedo's negligence caused the accident and that Haygood's damages were $110,069.12 for past medical expenses, $7,000 for future medical expenses, $24,500 for past pain and mental anguish, and $3,000 for future pain and mental anguish. The trial court overruled Escabedo's objection to an award of past medical expenses in excess of those paid or owed and rendered judgment on the verdict.

The court of appeals reversed, holding that section 41.0105 precluded evidence or recovery of expenses that “neither the claimant nor anyone acting on his behalf will ultimately be liable for paying”.⁸ The court suggested a remittitur of the amount of the health care providers' adjustments, ⁹ which Haygood did not accept, and the case was remanded for a new trial.¹⁰ The court noted that two other courts had reached conflicting decisions.¹¹ We granted Haygood's petition for review to resolve the conflict.¹²

II

The Legislature enacted section 41.0105 against a backdrop of health care pricing practices and the collateral source rule. We discuss each before turning to the statutory text and its consequences.

A

Charges for health care, once based on the provider's costs and profit margin, have more recently been driven by government regulation and negotiations with private insurers.¹³ A two-tiered structure has evolved: “list” or “full” rates sometimes charged to uninsured patients,¹⁴ but frequently uncollected,¹⁵ and reimbursement rates for patients covered by government and private insurance.¹⁶ We recently observed that “[f]ew patients today ever pay a hospital's full charges, due to the prevalence of Medicare, Medicaid, HMOs, and private insurers who pay discounted rates.” ¹⁷ Hospitals, like health care providers in general,¹⁸ “feel financial pressure to set their ‘full charges' ... as high as possible, because the higher the ‘full charge’ the greater the reimbursement amount the hospital receives since reimbursement rates are often set as a percentage of the hospital's ‘full charge.’ ” ¹⁹

Although reimbursement rates have been determined to be reasonable under Medicare or other programs, or have been reached by agreements between willing providers and willing insurers, providers nevertheless maintain that list rates are also reasonable. Providers commonly bill insured patients at list rates, with reductions to reimbursement rates shown separately as adjustments or credits.²⁰ Portions of bills showing only list charges are admitted in evidence, with proof of reasonableness coming from testimony by the provider, or more often, by affidavit of the provider or the provider's records custodian as permitted by section 18.001 of the Texas Civil Practice and Remedies Code.²¹

In all these respects, the present case is entirely typical. The providers testified the charges billed to Haygood were reasonable, even though those charges were four times the amount they were entitled to collect.

B

As a general principle, compensatory damages, like medical expenses, “are intended to make the plaintiff ‘whole’ for any losses resulting from the defendant's interference with the plaintiff's rights.” ²² The collateral source rule is an exception.²³ Long a part of the common law of Texas ²⁴ and other jurisdictions,²⁵ the rule precludes any reduction in a tortfeasor's liability because of benefits received by the plaintiff from someone else— a collateral source. Thus, for example, insurance payments to or for a plaintiff are not credited to damages awarded against the defendant.²⁶ “The theory behind the collateral source rule is that a wrongdoer should not have the benefit of insurance independently procured by the injured party, and to which the wrongdoer was not privy.” ²⁷

Haygood contends that an adjustment in billed medical charges required by an insurer is a collateral benefit covered by the rule. We disagree. The benefit of insurance to the insured is the payment of charges owed to the health care provider. An adjustment in the amount of those charges to arrive at the amount owed is a benefit to the insurer, one it obtains from the provider for itself, not for the insured. Haygood argues that the adjustment reduces the insured's liability, but the insured's liability is for payment of taxes, if a government insurer, or premiums, if a private insurer, and for any deductible. Any effect of an adjustment on such liability is at most indirect and is not measured by the amount of the adjustment.

The collateral source rule reflects “the position of the law that a benefit that is directed to the injured party should not be shifted so as to become a windfall for the tortfeasor.” ²⁸ To impose liability for medical expenses that a health care provider is not entitled to charge does not prevent a windfall to a tortfeasor; it creates one for a claimant, as we recently wrote in Daughters of Charity Health Services of Waco v. Linnstaedter.²⁹ Linnstaedter and Bolen sued Jones for injuries they sustained in a motor vehicle accident, claiming damages for the full amount of their hospital expenses.³⁰ The hospital was reimbursed part of those expenses by workers' compensation insurance and was precluded from seeking payment of the unpaid balance from its patients by the Workers' Compensation Act.³¹ Nevertheless, the hospital asserted a lien on any damages the patients recovered against Jones.³² Jones settled with the patients and paid the hospital the balance on its bill to discharge the lien.³³ The patients then sued the hospital for the amount of that payment.³⁴ We held that the hospital's claim to part of the patients' recovery against Jones was a claim against the patients themselves that was precluded by the Act.³⁵ Furthermore, we said, to allow the hospital to recover more than the reimbursement allowed by the Act would defeat its purpose of controlling medical costs.³⁶ But the patients had sued Jones for “the full medical charges billed by the hospital rather than the reduced amount paid by their compensation carrier”.³⁷ “[A] recovery of medical expenses in that amount”, we said, “would be a windfall; as the hospital had no claim for these amounts against the patients, they in turn had no claim for them against Jones.” ³⁸ Moreover, we noted, this rule had been codified in section...