Stayton v. Del. Health Corp.

• Decision Date: 12 June 2015
• Docket Number: No. 601, 2014,601, 2014
• Citation: 117 A.3d 521
• Parties: Diane L. Stayton, Plaintiff Below–Appellant, v. Delaware Health Corporation, a Delaware Corporation; Harbor Healthcare Center Company, L.L.C., a Limited Liability Company; Mary Francis Drandorff, RN, Individually; Ruthanne Roberts Jacobs, RN, Individually; and Renee L. Woznicki Edge, RN, Individually, Defendants Below–Appellees.
• Court: United States State Supreme Court of Delaware

117 A.3d 521

Diane L. Stayton, Plaintiff Below–Appellant

v.Delaware Health Corporation, a Delaware Corporation; Harbor Healthcare Center Company, L.L.C., a Limited Liability Company; Mary Francis Drandorff, RN, Individually; Ruthanne Roberts Jacobs, RN, Individually; and Renee L. Woznicki Edge, RN, Individually, Defendants Below–Appellees.

No. 601, 2014

Supreme Court of Delaware.

Submitted: May 6, 2015

Decided: June 12, 2015

William D. Fletcher, Jr., Esquire, Schmittinger and Rodriguez, P.A., Dover, Delaware, for Appellant Diane L. Stayton.

Norman H. Brooks, Jr., Esquire, Marks, O'Neill, O'Brien, Doherty & Kelly, P.C., Wilmington, Delaware, for Appellees.

Before STRINE, Chief Justice, HOLLAND, VALIHURA, VAUGHN and SEITZ, Justices; constituting the Court en Banc.

SEITZ, Justice:

I. INTRODUCTION

The plaintiff, Diane Stayton, sustained serious burn injuries while a resident at Harbor Healthcare and Rehabilitation Center (“Harbor Healthcare”), a skilled nursing center in Lewes, Delaware. She brought a medical negligence suit against those responsible for her care at Harbor Healthcare. In addition to general damages, Stayton sought special damages for the cost of her medical care after she was burned. Absent Medicare coverage, the burn hospital and other providers who treated her for her injuries would have billed Stayton $3,683,797.11. Because Stayton qualifies for Medicare, the Centers for Medicare and Medicaid Services (“CMS”) paid Stayton's healthcare providers $262,550.17 in full satisfaction of the expense of Stayton's hospital stay and other care. Medicare regulations required the write-off of $3,421,246.94, and Stayton's healthcare providers could not “balance bill” her for the amount written off.

The defendants moved for judgment on the pleadings seeking judgment as a matter of law that Stayton's medical expense damages were limited to the amount actually paid by CMS, rather than the amount Stayton might have been billed for her care. Stayton opposed the motion, relying on the collateral source rule. Stated generally, the collateral source rule provides that if an injured party is compensated for injuries from a source independent of the tortfeasor, the payment is not admissible to limit the damages paid by the tortfeasor. Application of the rule in this case to the amount Stayton's healthcare providers wrote off would mean Stayton could introduce into evidence as potential special damages the amount her healthcare providers might have billed ($3,683,797.11), instead of the amount actually paid ($262,550.17).

The Superior Court granted the defendants' motion, and limited Stayton's medical expense claim to the amount paid by CMS. The court decided that the collateral source rule did not apply to amounts required by federal law to be written off by healthcare providers. We accepted certification of an interlocutory appeal under Supreme Court Rule 42 from the Superior Court's decision.

On appeal, Stayton argues that the Superior Court should have applied the collateral source rule to the Medicare write-offs. We conclude that the collateral source rule does not apply to amounts required to be written off by Medicare. Where a healthcare provider has treated a plaintiff covered by Medicare, the amount paid for medical services is the amount recoverable by the plaintiff as medical expense damages.

II. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

According to the allegations of the complaint, at the time of the accident, Stayton was a 76 year-old resident of the Harbor Healthcare and Rehabilitation Center. She was wheelchair bound, paralyzed in one of her arms and one of her legs, and had also suffered from a stroke

. While unsupervised, she attempted to light a cigarette and caught her clothing on fire. Stayton was burned over twenty three percent of her body, requiring treatment by over thirty physicians and other healthcare providers during her nearly six month hospital stay at Crozer Burn Center in Chester, Pennsylvania.

Stayton alleges that defendants' medical negligence caused her injuries. The hospital and her other healthcare providers billed a total of $3,683,797.11, representing the amount that would be billed to Stayton absent Medicare coverage.¹ The same bill summary shows that Medicare through CMS paid the providers $262,550.17 in full satisfaction of all healthcare provider charges.²

Medicare is a government-sponsored health insurance program for people 65 years old or older who are eligible for Social Security retirement benefits.³ The program is largely funded through taxes paid by employers and employees under the Federal Insurance Contributions Act.⁴ Beneficiary participation is involuntary.⁵ Many eligible beneficiaries receive benefits directly from the federal government, but some elect to receive their benefits through private insurance companies that contract with the Government to provide “Medicare+Choice” plans.⁶

When a healthcare provider like Crozer Burn Center delivers medical services to a patient covered under Medicare, the provider must submit its bill to the Medicare agency for reimbursement.⁷ The provider cannot seek reimbursement for its medical services from anyone other than Medicare.⁸ Medicare pays, on average, less than one-third of a patient's medical expenses.⁹ The healthcare provider is required to write off the remaining balance, and it cannot collect any further payments on that amount.¹⁰ Under the Medicare as Secondary Payer Act, the Medicare Trust Fund can place a lien on any tort recovery by the patient in the amount of the benefits actually paid, minus a portion of the litigation costs.¹¹

The defendants moved for judgment on the pleadings under Superior Court Civil Rule 12(c) to limit Stayton's past medical expense damages to the $262,550.17 paid to Stayton's healthcare providers by CMS. They argued that the written-off portion of the claim was not recoverable because neither Medicare nor Stayton would be required to pay it and Crozer Burn Center and Stayton's other providers would never collect it. In response, Stayton contended that she was entitled to the entire amount billed by Crozer Burn Center and her other providers, including the written-off portions of her bills, because under the collateral source rule, an injured party is permitted to recover the full reasonable cost of medical services from the tortfeasor, and a tortfeasor may not benefit from payments that the victim receives from third parties.

Although this Court recognized the collateral source rule as a “firmly embedded” principle of Delaware law in Mitchell v. Haldar,¹² the Superior Court distinguished benefits received as a consequence of a contract with a private insurer from benefits received under operation of federal law. The Superior Court relied on our decision in State Farm Mutual Auto Insurance Company v. Nalbone, which held that the plaintiff was not allowed to seek a damage award that included compensation for lost wages when she was receiving reimbursement for those losses from her employer's disability plan.¹³ The Superior Court found that Nalbone qualified the collateral source rule by requiring the court to examine the consideration that had been paid by the plaintiff before awarding a double recovery. “[I]f a Plaintiff has paid consideration for recovery from a collateral source,” the Superior Court reasoned, “then the double recovery is permissible.”¹⁴ But because Stayton “did not contract with her health provider to accept reduced payments from Medicare for her medical expenses,” the court found the collateral source rule did not apply.¹⁵

After examining several cases addressing the question of whether the full amount of medical expenses, including amounts paid for by collateral sources, could be recovered in a damages action, the Superior Court decided to follow a Superior Court case, Rice v. The Chimes, Inc.¹⁶ In Rice, the plaintiff sustained burn injuries that were also treated at Crozer. Crozer submitted charges of $883,000 to Medicare, and Medicare paid $59,000, requiring Crozer to write-off the remaining $824,000. In finding that the plaintiff could only recover $59,000, the amount paid by Medicare, the Superior Court reasoned that the collateral source rule did not apply to expenses that are never paid. It concluded that “healthcare debt is simply extinguished by operation of law when the healthcare provider elects to accept payment of assigned benefits directly from Medicare.”¹⁷

The Superior Court concluded that Stayton could only recover $262,550.17 as compensation for her medical expenses, the only amount that Crozer Burn Center and Stayton's other providers would receive as payment, and the maximum amount that Medicare could recover from Stayton. It concluded that preventing the plaintiff from recovering “inflated and fictitious damages” reduced the possibility of overly-inflated special damage awards, which are often based on awards for actual damages, and ameliorated the increasing cost of liability insurance coverage for healthcare providers.¹⁸

III. ANALYSIS

Where an injured plaintiff seeks to recover for medical services, the plaintiff must prove two distinct issues—first that the value claimed for medical services is reasonable, and second that the need for medical services was proximately caused by the tortfeasor's negligence.¹⁹ Here we focus on whether the amount claimed by Stayton—the full amount of her hospital bill—reasonably approximates the value of her medical services.

On appeal, Stayton asks this Court to reverse the Superior Court's judgment, arguing that it shifts the benefit of Medicare from the victim to the tortfeasor, contrary to the collateral source rule and the Restatement (Second) of Torts. Stayton also contends that a rule limiting her recovery to the amount of Medicare payments would differentiate between similarly situated personal injury claimants because victims covered by Medicare would receive less compensation in a tort suit than parties with private...