Smith v. Mahoney

• Decision Date: 03 November 2016
• Docket Number: No. 642, 2015,642, 2015
• Citation: 150 A.3d 1200
• Parties: Jennifer L. SMITH, Defendant Below, Appellant/Cross-Appellee, v. Delaine MAHONEY, Nicole Marie Richards, Plaintiffs Below, Appellees/Cross-Appellants.
• Court: Supreme Court of Delaware

150 A.3d 1200

Jennifer L. SMITH, Defendant Below, Appellant/Cross-Appellee,

v.Delaine MAHONEY, Nicole Marie Richards, Plaintiffs Below, Appellees/Cross-Appellants.

No. 642, 2015

Supreme Court of Delaware.

Submitted: September 21, 2016

Decided: November 3, 2016

Robert C. Collins, II, Esquire, Schwartz & Schwartz, P.A., Dover, Delaware; Robert S. Peck, Esquire (argued), Center for Constitutional Litigation, P.C., Fairfax Station, Virginia, and Jeffrey R. White, Esquire, Center for Constitutional Litigation, P.C., Washington, DC, for Appellant/Cross-Appellee, Jennifer L. Smith.

Thomas P. Leff, Esquire (argued), Rachel D. Allen, Esquire, and Brian V. Demott, Esquire, Casarino Christman Shalk Ransom & Doss, P.A., Wilmington, Delaware, for Appellee/Cross-Appellant, Delaine Mahoney.

Raeann Warner, Esquire, Jacobs & Crumplar, P.A., Wilmington, Delaware; Patrick C. Gallagher, Esquire, Curley, Dodge, & Funk, LLC, Dover, Delaware, Amicus Curiae for Delaware Trial Lawyers Association in Support of Appellant/Cross-Appellee, Jennifer L. Smith.

Before VALIHURA, VAUGHN, and SEITZ, Justices.

SEITZ, Justice:

I. Introduction

The collateral source rule excludes from a jury's consideration payments or compensation received by a tort plaintiff from a source independent of the wrongdoer. Even though the rule might result in the wrongdoer paying for expenses already paid to the plaintiff by a third party, the law has historically allowed the plaintiff a double recovery, reasoning that imposing maximum liability has a deterrent effect, and the wrongdoer should not benefit from the plaintiff's good fortune of having another source of compensation.

When a plaintiff claims medical expenses as damages in a personal injury suit, we have applied the collateral source rule to gratuitous write-offs by physicians and to payments by private health insurers. In those situations, our prior decisions have allowed the plaintiff to present to the jury the standard cost of the healthcare services instead of the amount actually paid the provider. By operation of the rule in those circumstances, the plaintiff is able to recover amounts that are paid by no one.

In Stayton v. Delaware Health Corporation¹ we drew the line at gratuitous services and private health insurance, and refused to extend the collateral source rule when Medicare paid the plaintiff's past medical expenses. We held that the collateral source rule could not be used to increase an injured party's recovery of past medical expenses beyond those actually paid by Medicare. Although we did not overrule our earlier precedent, we questioned whether charges paid by no one and that are unnecessary to make the plaintiff whole should be awarded as damages. We also believed that the discounting required by Medicare arises from the financial agreement between the healthcare provider and the government, not with the plaintiff. Thus, it is the taxpayers who directly benefit from Medicare's reduced reimbursement rates. After balancing the competing concerns, we thought the better course was to limit a plaintiff's past medical expense damages to the actual amount paid by Medicare. Further, to eliminate inefficient litigation over the reasonable value of medical services, we also decided that the amount paid by Medicare conclusively determines the reasonable value of the injured party's past medical services.

This appeal requires us to consider whether the collateral source rule should apply when Medicaid pays for an injured party's medical expenses. For essentially the same reasons expressed in Stayton , we hold that, when Medicaid has paid an injured party's medical expenses, the collateral source rule cannot be used to increase an injured party's recovery of past medical expenses beyond those actually paid by Medicaid. As with Medicare, the difference is unnecessary to make the injured party whole because it is paid by no one. Like Medicare, the reduced charges required by Medicaid directly benefit federal and state taxpayers, not the plaintiff. Thus, we again refuse to extend operation of the collateral source rule. Further, we conclude as we did for Medicare that the amount paid by Medicaid is conclusive of the reasonable value of the injured party's past medical services. We therefore affirm the Superior Court's decision applying Stayton when Medicare pays a plaintiff's past medical expenses.

We also affirm the Superior Court's ruling that future medical expenses are not subject to Medicaid reimbursement limitations. Unlike Medicare, Medicaid coverage is income dependent, and might not be available if a plaintiff improves her financial position to a living wage and secures other insurance. Because of the uncertainty of future coverage, Medicaid benefits cannot be used to limit a plaintiff's future medical expenses.

II. Statement of Facts and Procedural History

The appellant, Jennifer L. Smith, was injured in two car collisions. Although employed when her injuries occurred, Smith qualified for Medicaid coverage. At first, her treating physician sought to recover his standard charges of $22,911 from the proceeds of any personal injury settlement. But later, the treating physician opted to forego his original billed amount, and instead billed Medicaid for his charges. Medicaid paid the treating physician $5,197.71, and asserted a lien in that amount on the proceeds of any recovery by settlement or lawsuit.

Smith filed suit in the Superior Court against the two defendants. At trial, Smith presented to the jury the treating physician's standard charge of $22,911 and a $2,000 charge from MRI Consultants. Smith's medical expert also testified that Smith would require future medical treatment of about $3,300 per year. The jury did not hear that the medical providers were never paid the difference between what Medicaid paid ($5,197.71), and the amount originally billed by the medical providers ($24,911), or $19,713.29. A Superior Court jury returned a verdict for Smith and awarded her $24,911 for past medical expenses, $10,000 for future medical expenses, and $15,000 for pain and suffering.

Because there were two car crashes and two defendants, the jury apportioned its award ninety percent to defendant Delaine Mahoney and ten percent to defendant Nicole Marie Richards. The court also reduced Richard's share under the Delaware PIP statute by $2,244.35 because that amount could still be used to cover Richard's liability. When all was netted out, the Superior Court entered judgment against the defendants jointly and severally for $49,911.

Following post-trial motions, the Superior Court issued a November 20, 2015 opinion where it considered the impact of the intervening Stayton decision on the jury award. Relying on Stayton and the Superior Court's earlier decision in Rice v. The Chimes, Inc. ,² the court determined that "Delaware case law is clear that the collateral source rule does not apply to Medicaid or Medicare write-offs."³ According to the court, the written-off amount was not paid by any collateral source, and, as in Stayton , the write-offs are not "payments made to or benefits conferred on the injured party."⁴ Thus, the collateral source rule would not be applied to allow Smith to recover the amount written off for past medical services. The court reduced Smith's past medical expenses to $5,197.71—the amount Medicaid actually paid to the medical providers.

As for future medical expenses, the Superior Court recognized that in Stayton we applied traditional notions of causation, and reaffirmed the established principle that future damages must be proven with reasonable certainty. The Superior Court reviewed its recent decision in Russum v. IPM Development Partnership LLC ,⁵ but thought it was distinguishable. In Russum , the court applied Stayton and held that, when Medicare pays medical expenses, future medical expenses must be limited to amounts projected to be paid by Medicare. The court distinguished Russum due to the differences between Medicare and Medicaid coverage. As the court held, Medicare enrollment is mandatory and based on age, disability, and work history. But Medicaid enrollment is optional and based on income resources and other factors. Medicaid coverage can also end based on the plaintiff's improving finances and availability of other insurance. Because future Medicaid eligibility is uncertain and thus "purely speculative and conjectural," the Superior Court declined to reduce the jury's $10,000 award for future medical expenses to account for the lower reimbursement rates of future Medicaid coverage.⁶

III. Analysis

Smith raises several issues on appeal. First, Smith claims that the Superior Court erred when it applied the Stayton decision to Medicaid benefits. According to Smith, Medicaid benefits differ from Medicare benefits because healthcare providers supposedly must accept Medicare, but can exercise a choice whether to accept Medicaid. In other words, because the provider has a choice, if a provider chooses to accept Medicaid instead of billing the injured party the standard cost of medical services, the provider has conferred a benefit on the injured party which, under the collateral source rule, should not benefit the tortfeasor. Smith also argues that the collateral source rule must be applied to Medicaid benefits because the jury trial right and due process prohibit the court from limiting damages. Finally, Smith argues that the failure to apply the collateral source rule to Medicaid recipients will unconstitutionally burden access to the courts. Because Smith raises legal issues, we review the Superior court's decision de novo.⁷

As we noted in Stayton , the collateral source rule strikes a balance between two competing principles: "(1) a plaintiff is entitled to compensation sufficient to make him whole, but no more; and (2) a defendant is liable for all damages that proximately result from the wrong."⁸ Where the plaintiff receives a payment from a third party source, "the plaintiff's...