On June 2, 2016, the Western Section of the Tennessee Court of Appeals issued its opinion in Dedmon v. Steelman, No. W2015-01462-COA-R9-CV (Tenn. Ct. App. June 2, 2016).  Judge Brandon O. Gibson delivered the opinion, in which Judge Andy D. Bennett joined, and Judge Joe G. Riley, sitting as a Special Judge on the panel, filed a concurring opinion.  The Dedmon case, on interlocutory appeal from the Circuit Court of Crockett County, Tennessee, directly addressed the case of West v. Shelby County Healthcare Corp., 459 S.W.3d 33 (Tenn. 2014), and considered its effect on personal injury litigation in Tennessee. 

As a brief summary, the Tennessee Supreme Court’s decision in West considered the appropriate measure of “reasonable medical expenses” in the context of the Hospital Lien Act (“HLA”), codified at Tenn. Code Ann. § 29-22-101(a).  Under the HLA, medical providers are entitled to recover, through a lien, for the “reasonable medical expenses” resulting from their treatment of a patient.  In West, the Court considered the scope of the “reasonable expenses” that can be recovered by medical providers under this Act.  The Supreme Court looked past the often-illusory “unadjusted charges” issued by modern healthcare companies and found that “with regard to an insurance company’s customers, ‘reasonable charges’ are the charges agreed to by the insurance company and the hospital.  [The hospital’s] contract with [the insurer] defined what the reasonable charges for the medical services provided to [its patients] would be.”  West, 459 S.W.3d at 46.  With this in mind, the Court limited the amount a hospital could recover as “reasonable expenses” to the amount paid and accepted in satisfaction of a patient’s bill.  The West Court further explained that the concept of “reasonable medical expenses” is “well known to the bench and bar,” applying not only in the hospital lien context, but also in medical malpractice actions, workers’ compensation actions, and personal injury actions.

Based upon this decision and the far-reaching language used by the Supreme Court, many members of the Defense Bar began pursuing efforts to limit recoverable medical expenses in personal injury actions to the amount paid on a Plaintiff’s behalf and accepted in satisfaction of a Plaintiff’s bill.  These efforts were fiercely opposed by Plaintiffs hoping to pocket the difference between the unadjusted charges and actual charges as “phantom damages.”  The Plaintiffs’ Bar routinely argued this price difference, known as the “negotiated price differential” was a benefit conferred to the Plaintiff through insurance, and therefore was protected by the long-standing collateral source rule.  These opposing arguments were met with varying degrees of success in both state and federal trial courts, and conflicting orders appeared across the state.

In Dedmon, expressly relying upon the authority of West, the Defendants filed a motion in limine seeking to prohibit the Plaintiff from introducing evidence of any medical “expenses” exceeding the amounts accepted by the Plaintiff’s healthcare providers in satisfaction of the Plaintiff’s medical bills. Defendants argued that these excess charges were unreasonable as a matter of law following West. Though acknowledging that West construed “reasonable expenses” under the HLA, the trial court judge concluded: “I cannot imagine that [the Tennessee Supreme Court] would use any other logic in this situation than they used in that situation.”  Dedmon v. Steelman, No. W2015-01462-COA-R9-CV at 3 (Tenn. Ct. App. June 2, 2016).  Accordingly, the Defendants’ motion in limine was granted, and an interlocutory appeal followed.  Although the Court of Appeals ultimately reversed the trial court’s order, it is important to recognize that the Dedmon opinion is not necessarily “bad” for Defendants.  Rather, the Court charted a middle ground between the two sides, ultimately adopting a “hybrid approach” that will allow Plaintiffs to present evidence of the full, “unadjusted” charges issued by healthcare providers, but will also allow Defendants to present evidence of the lower, “adjusted” charges that were actually paid in order to refute the excess charges claimed by Plaintiffs.

In considering the issue, the Court of Appeals acknowledged that the concept of “reasonable medical expenses” has come under increased scrutiny in recent years “due to the increased involvement of government payors, the complexity of health care reimbursement provisions, financial pressures on hospitals, and the significance of medical expense recovery in personal injury litigation.”  Dedmon at 6.   The Court further noted that the unadjusted charges issued by healthcare providers are “vastly different” than the amounts actually paid on behalf of patients.  Id. at 7 n.5.  However, the Court concluded that under existing authority, “damages in personal injury cases are not measured by ‘fixed rules of law’ but rest largely in the discretion of the trier of fact.”  Id. at 13 (quoting Roberts v. Davis, 2001 WL 921903, at *4 (Tenn. Ct. App. Aug. 7, 2001)). The Court found that Plaintiffs are entitled to present expert testimony regarding the reasonableness of their claimed damages.  Id. (citing Borner v. Autry, 284 S.W.3d 216, 218 (Tenn. 2009)).  However, the Court further found that “existing law in this state also makes clear that Defendants are permitted to offer proof contradicting the reasonableness of the medical expenses.”  Id. at 16.  Although Defendants were cautioned not to run afoul of the collateral source rule by indicating how a bill was actually paid, “allowing evidence that a medical bill was satisfied for a lower amount does not necessarily require evidence that the payment was made by a collateral source such as insurance.”  Id. at 7 n.6.  As the Court explained, the collateral source rule “does not address, much less bar, the admission of evidence indicating that something less than the charged amount has satisfied, or will satisfy, the amount billed.”  Id. at 17 (quoting Martinez v. Milburn Enters., Inc., 233 P.3d 205, 222–23 (Kan. 2010)).  In so holding, the Court specifically addressed and refuted the argument that the “negotiated price differential” is somehow protected by the collateral source rule.  Thus, under Dedmon, Plaintiffs will no longer be able to use the collateral source rule as sword and shield when telling juries how much their medical expenses are.  Juries will still determine the reasonable expenses, but only after hearing both sides of the story.

It should also be noted that the Court of Appeals specifically asked the Supreme Court to review this case to weigh in on whether the logic of West should apply in the context of personal injury actions.  In his concurring opinion, Judge Riley agreed with the majority opinion based upon existing law; however, he further explained that “[w]ere it not for existing case law which we are bound to follow as an intermediate appellate court, I would apply the West rationale to personal injury litigation.” Judge Riley further opined that “modern day medical providers’ non-discounted charges generally dictate that that non-discounted charges are no longer reasonable medical expenses,” and “if the non-discounted charge is used as the reasonable medical expense, I believe the amount of the windfall to plaintiffs is no longer rationally based and is out of kilter as compared to the past.”  Thus, Judge Riley concluded:  “I see no reason to continue to provide the jury or other fact-finder with misleading data.” With both the majority and concurring opinion calling upon the Tennessee Supreme Court to consider this issue, it is likely that this matter will soon come under review once again.  In the meantime, however, the authority of Dedmon provides clear opportunity for Defendants to introduce the actual cost of medical expenses to challenge the often exorbitant “unadjusted” rates issued by healthcare providers.  This system leaves the ultimate decision to the jury, but it should limit the “phantom damages” recovered by Plaintiffs.

For more information and pdf of TDLA's Amicus Brief, please click here.

*Attorneys Bradford D. Box and Adam P. Nelson with Rainey, Kizer, Reviere & Bell’s Tort and Insurance Defense section submitted an Amicus Brief on behalf of the TDLA in support of the Defendant’s position.