No. 13-0427 - John N. Kenney v. Samuel C. Liston
                                                                          FILED
                                                                       June 4, 2014
                                                                       released at 3:00 p.m.
LOUGHRY, Justice, dissenting:                                          RORY L. PERRY II, CLERK
                                                                     SUPREME COURT OF APPEALS
                                                                         OF WEST VIRGINIA




              “The object of tort law is to provide reasonable compensation for losses[.]”

Roberts v. Stevens Clinic Hosp., Inc., 176 W.Va. 492, 504, 345 S.E.2d 791, 803 (1986). To

that end, “‘[t]he general rule in awarding damages is to give compensation for pecuniary loss;

that is, to put the plaintiff in the same position, so far as money can do it, as he would have

been [in] if ... the tort [had] not [been] committed.’” Kessel v. Leavitt, 204 W.Va. 95, 187,

511 S.E.2d 720, 812 (1998) (quoting 5C Michie’s Jur. Damages § 18, at 63 (footnote

omitted)). In this case, the majority has turned this fundamental rule on its head by allowing

a jury to award compensable damages based on fictitious evidence that bears no relationship

to the plaintiff’s actual losses. In such regard, the majority has determined when a tortiously

injured person receives medical care for his or her injuries, that individual’s recovery for the

medical expenses incurred will be based upon an artificially inflated number that exists only

in the medical provider’s billing system rather than the actual amount the medical provider

willingly accepts as full payment for the services rendered. The majority’s conclusion that

medical bills that include a “write-off” or discount–an amount no one pays–constitutes the

“reasonable value” of the medical services rendered defies both logic and common sense.

Therefore, I dissent.



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              Long ago, this Court recognized that “the very term ‘compensatory damages’

implies that there must be actual loss before compensation can be given[.]” Douglass v.

Railroad Co., 51 W.Va. 523, 533, 41 S.E. 911, 916 (1902). Yet, the majority’s decision

today allows a plaintiff’s damages to be based on the amount a medical provider wishes it

could charge for a particular service, not the amount necessary to put the plaintiff in the same

financial position he or she was in before the tort occurred. The “write-offs” or discounts

at issue here are not sums for which the plaintiff has incurred any liability because these are

amounts which the medical provider never actually expects to be paid and never will be paid.

Because neither the plaintiff, nor anyone on the plaintiff’s’ behalf, pays the “write-offs” or

discounts, no loss occurs. Therefore, these amounts should not be recoverable.



              Precluding recovery for the “write-offs” or discounts does not contravene the

collateral source rule. The purpose of the collateral source rule is to prevent the jury from

discounting a plaintiff’s damages based on the fact that the plaintiff’s bills have already been

paid by someone else. As this Court has observed, “[t]he collateral source rule normally

operates to preclude the offsetting of payments made by health and accident insurance

companies or other collateral sources against the damages claimed by the injured party.” Syl.

Pt. 7, Ratlief v. Yokum, 167 W.Va. 779, 280 S.E.2d 584 (1981) (emphasis added). “Because

no one pays the write-off, it cannot possibly constitute payment of any benefit from a

collateral source.” Robinson v. Bates, 857 N.E.2d 1195, 1200 (Ohio 2006); see also Kastick

v. U-Haul Co., 740 N.Y.S.2d 167, 169 (N.Y. App. Div. 2002) (stating that “‘write-off’. . .

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is not an item of damages for which plantiff may recover because plaintiff has incurred no

liability therefor”); Moorhead v. Crozer Chester Med. Ctr., 765 A.2d 786 (Pa. 2001) (finding

collateral source rule does not apply to amounts written off by insurer since those amounts

are never paid by collateral source), abrogated on other grounds by Northbrook Life Ins. Co.

v. Commonwealth, 949 A.2d 333 (Pa. 2008).



              The majority reasons that these “write-offs” or discounts are protected by the

collateral source rule because the plaintiff received the benefit of her bargain with the

insurance carrier as well as a gratuitous benefit arising from the bargain with the medical

provider. The fallacy of this reasoning is easily demonstrated.



               The majority concludes that the “write-off” or discount is a benefit the plaintiff

received from her insurer because she paid the premium and her insurer extinguished her

liability for the full price of her medical care through a combination of cash payments and

the negotiated “write off” or discount. However, the majority ignores the fact that the

plaintiff was never liable for the inflated bill because at the time the charges were incurred,

the medical provider and the insurer had already agreed on a different price for the services

rendered. Furthermore, the “write off” or discount does not primarily benefit the plaintiff

and to the extent that it does, it was not intended as compensation for the plaintiff’s injuries.

Rejecting the same reasoning employed by the majority in this case, the Supreme Court of

California explained that

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              Insurers and medical providers negotiate rates in pursuit of their
              own business interests, and the benefits of the bargains made
              accrue directly to the negotiating parties. The primary benefit
              of discounted rates for medical care goes to the payer of those
              rates–that is, in largest part, to the insurer.

                      Nor does the insurer negotiate or the medical provider
              grant a discounted payment rate as compensation for the
              plaintiff’s injuries. . . . [S]ellers in almost any industry may,
              for a variety of reasons, discount their prices for particular
              buyers, but a discounted price is not a payment. . . . Nor has
              the value of damages the plaintiff avoided ever been the
              measure of tort recovery. And even when the overall savings a
              health insurance organization negotiates for itself can be said to
              benefit an insured indirectly–through lower premiums or
              copayments, for example–it would be rare that these indirect
              benefits would coincidentally equal the negotiated rate
              differential for the medical services rendered the plaintiff.

Howell v. Hamilton Meats & Provisions, Inc., 257 P.3d 1130, 1144 (Cal. 2011) (internal

quotations omitted).



              Likewise, the “write-off” or discount is not a gratuitous provision of medical

services because the medical provider agreed before treating the plaintiff to accept a certain

amount in exchange for its services. The amount constitutes the medical provider’s price that

the plaintiff and her health insurer were obligated to pay. In Howell, the Court found that the

gratuitous services exception to the rule limiting recovery to a plaintiff’s economic loss “has

no application to commercially-negotiated priced agreements like those between medical

providers and health insurers,” observing that

              [m]edical providers that agree to accept discounted payments by
              managed care organizations or other health insurers as full

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              payment for a patient’s care do so not a gift to the patient or
              insurer, but for commercial reasons and as a result of
              negotiations. . . . [H]ospitals and medical groups obtain
              commercial benefits from their agreements with health
              insurance organizations; the agreements guarantee the providers
              prompt payment of the agreed rates and often have financial
              incentives for plan members to choose the providers’ services.
              . . . That plaintiffs are not permitted to recover undiscounted
              amounts from those who have injured them creates no danger
              these negotiations and agreements will disappear; the medical
              provider has no financial reason to care whether the tortfeasor
              is charged with or the plaintiff recovers the negotiated rate
              differential. Having agreed to accept the negotiated amount as
              full payment, a provider may not recover any difference
              between that and the billed amount through a lien on the tort
              recovery.

Howell, 257 P.2d at 1139-40 (citations omitted). Thus, the “write-off” or discount is not a

collateral payment or benefit that is subject to the collateral source rule.



              Given the current complexities of health care pricing structures, it is simply

absurd to conclude that the amount billed for a certain procedure reflects the “reasonable

value” of that medical service. Like retailers who raise the price of their goods by twenty-

five percent before having a ten percent off sale, medical providers utilize the same sort of

tactic to ensure a profit. In fact, “[b]ecause so many patients, insured, uninsured, and

recipients under government health care programs, pay discounted rates, hospital bills have

been called ‘insincere,’ in the sense that they would yield truly enormous profits if those

prices were actually paid.” Howell, 257 P.2d at 1142 (citation omitted).

                     One authority reports that hospitals historically billed
              insured and uninsured patients similarly. Mark A. Hall & Carl

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              E. Schneider, Patients As Consumers: Courts, Contracts, and
              the New Medical Marketplace, 106 Mich. L.Rev. 643, 663
              (2008). With the advent of managed care, some insurers began
              demanding deep discounts, and hospitals shifted costs to less
              influential patients. Id. This authority reports that insurers
              generally pay about forty cents per dollar of billed charges and
              that hospitals accept such amounts in full satisfaction of the
              billed charges. Id.

                     As more medical providers are paid under fixed payment
              arrangements, another authority reports, hospital charge
              structures have become less correlated to hospital operations and
              actual payments. The Lewin Group, A Study of Hospital Charge
              Setting Practices i (2005). Currently, the relationship between
              charges and costs is “tenuous at best.” Id. at 7. In fact, hospital
              executives reportedly admit that most charges have “no relation
              to anything, and certainly not to cost.” Hall, Patients As
              Consumers at 665.

Stanley v. Walker, 906 N.E.2d 852, 857 (Ind. 2009). Thus, to conclude that a medical bill

that does not reflect the “write-off” or discount that will ultimately be given to the payer

constitutes the reasonable value of the medical service rendered ignores the reality of modern

medicine economics.



              It is difficult to conceive how allowing the plaintiff to present to the jury

fictitious evidence of amounts paid for medical services, while preventing the tortfeasor

from challenging that evidence, serves the interests of justice. The petitioner in the instant

case sought to introduce the amounts actually paid for the medical services not in an effort

to establish a per se limit on the respondent’s medical damages, but rather as evidence of

precisely what the majority’s new syllabus point prescribes–the reasonable value of those


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services. What more probative evidence of the reasonable value of the services could there

be than the negotiated and paid rate for the services? What more could a defendant offer to

rebut the prima facie presumption established in West Virginia Code § 57-5-4j? Are we to

blindly accept the fiction that hospitals and other medical providers routinely and as a matter

of freely-negotiated contracts accept less than the reasonable value of their services?



              The collateral source rule should not be extended to permit plaintiffs to receive

compensation for medical expenses that were never paid by anyone. The rule was intended

to prevent tortfeasors from unfairly receiving a discount on the damages they are required

to pay merely because a plaintiff was wise or fortunate enough to have procured insurance

coverage. Limiting the amounts which can be recovered as damages for medical expenses

to those amounts actually paid, as opposed to fictitious amounts generated by medical

providers to ensure they can still make a profit after giving a substantial discount, does not

thwart the rationale behind the collateral source rule. If tortfeasors are automatically required

to compensate plaintiffs for their medical expenses at the highest possible price, regardless

of the actual amounts paid, those costs will inevitably be passed on to the public through

higher insurance premiums. “Tort law . . . is not designed to be a Las Vegas game of chance;

it serves no useful purpose to turn the tort system into a lottery where everyone pays high

insurance premiums so that enormous windfalls can be allocated randomly.” Roberts, 176




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W.Va. at 504, 345 S.E.2d at 803-04. Accordingly, I respectfully dissent from the majority’s

decision in this case.1




       1
        While I do not disagree with the majority’s decision with regard to the other
assignments of error, I would have found it unnecessary to address those issues and ordered
a new trial based on the faulty compensable damages award.

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