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This blog post focuses on damages a plaintiff can recover for past medical expenses in personal injury cases in Texas courts.[1] We note damages for future medical expenses raise different issues and that discussion is outside the scope of this paper. To recover for past medical expenses in a Texas personal injury case, the plaintiff must prove the past medical expenses were medically necessary due to the injury that is the subject of the litigation. The plaintiff must also prove the reasonable value of the past medical expenses. We discuss how the courts define reasonable value.
If the defendant is found liable for a personal injury, the plaintiff can recover the reasonable value of expenses for medically necessary goods and services needed due to the injury that is the subject of the litigation. Medical necessity and relatedness are issues for a physician or other clinician to address and are outside the scope of this paper. The reasonable value of the goods and services is an economic or financial question for an economist or other financial expert and is our focus.
The starting point for analysis of reasonable value is the provider’s bill. Not all providers in personal injury cases bill using standard claim forms,[2] and not all providers include the standard Health Care Procedure Coding System (HCPCS)[3] codes to describe the goods and services provided. Texas Department of Insurance (TDI) rules define the data elements on a “clean claim.”[4] Health care providers in personal injury cases are not required to file clean claims, but the TDI rules are relevant to show what it is reasonable to expect a provider to include on a bill to document goods and services. When the provider has not filed a clean claim, the services of a certified coder may be necessary to supply missing codes. When the provider does not provide standard coding or sufficient documentation for a certified coder to assign standard codes, the provider may not have established the services were medically necessary and the charges were reasonable, which would justify a court denying any recovery for those services.
There are generally accepted billing rules for how goods and services are billed. Many of the rules, such as those in the National Correct Coding Initiative (NCCI),[5] were developed by the Center for Medicare and Medicaid Services (CMS) to adjudicate Medicare and Medicaid claims. They have since become generally accepted by other public programs and by private health plans. A standard step in reviewing any bill is to check for violations of billing rules, modify improper codes, and delete or adjust improper charges.
The upper limit of damages for past medical expenses is the billed charges of the healthcare provider. Each provider unilaterally sets its billed charges, usually with no limits on how high they may be. Providers are supposed to bill all patients the same charge for the same service on the same day, even if they expect to be paid differently for each patient. This is referred to as the provider’s “usual and customary” charge. There is no presumption by Texas courts that a provider’s billed charge is a reasonable charge for services in a medical market or that the billed charge, even if a reasonable charge, is the reasonable value of the service.[6]
Usual, Customary, and Reasonable Charges
Reasonable charges are usually determined by comparing one provider’s charge for a service to the charges of other providers in the same medical market. This is referred to as a “usual, customary, and reasonable” (UCR) charge. A UCR charge for a service is usually one that falls below the 80th percentile in the medical market. An RPC white paper explains how UCR charges are calculated and the general acceptance of the 80th percentile.[7] If the billed charge is greater than the UCR charge, the upper limit on damages may be the UCR value.
HCPCS codes, Ambulatory Payment Classifications (APCs), Diagnosis Related Groups (DRGs) and other standard code sets are used to define similar services. Medical markets can best be defined using market definitions by the Dartmouth Atlas of Healthcare.[8] However, many publishers of UCR values use the first three digits of zip codes, called “geozips,” to define market areas.[9] The data used to calculate UCR values for different percentiles can come from public use data files from state or federal agencies or from claims data from one or more health plans. It is necessary to choose a percentile to define the upper bound of a reasonable charge. The 80th percentile is the most frequently used and is the charge percentile referenced by SB 1264 and statutes in other states.[10]
If a medical bill has been paid or is to be paid by a health plan at a rate the provider accepts as payment in full, that amount is the upper limit on the reasonable value of the service. TCPRC §41.0105 states, “Recovery of medical or health care expenses incurred is limited to the amount actually paid or incurred by or on behalf of the plaintiff.”[11] This legislative enactment codified an earlier court decision in Haygood v. De Escabedo.[12] In Haygood, the Texas Supreme Court (SCOTX) limited the recovery of medical expenses to only those costs actually paid or to be paid, and not the “list price” on the medical bills. The court stated it did not want to create a windfall for the plaintiff and that “to impose a liability for medical expenses that a health care provider is not entitled to charge”[13] would create such a scenario. As explained below, this holding effectively means that a plaintiff’s recovery of past medical expenses is capped by what the provider is entitled to be paid, not what it charged, for the service to the plaintiff.
TCPRC §41.0105 substantially modifies or eliminates the collateral source rule, at least for insured patients and providers who have agreed to accept negotiated or regulated rates as payment in full. If there is a negotiated or regulated rate, the patient has only incurred that rate as the allowed amount, as the provider has agreed to accept the allowed amount as payment in full. Evidence of insurance coverage and the allowed amount should be discoverable and admissible to determine the amount incurred.
When the provider writes off amounts as contractual adjustments, the claimant is not entitled to the unadjusted amount, as these are not considered “paid or incurred.” In Prabhakar v. Fritzgerald,[14] the court stated, “In other words, amounts written off by medical providers are not amounts ‘paid or incurred’ under the statute.”[15] The jury must award the amount the claimant has actually incurred. This point was also raised in the Beasley case,[16] where the plaintiff made a personal injury protection (PIP) claim to his insurer, Farmers Insurance, for the billed charges rather than the lower negotiated rate with his health plan, Blue Cross Blue Shield (BCBS), the provider had accepted as payment in full. The judge denied Beasley the billed charges, stating, “According to Farmers, the medical expenses incurred were not the providers’ list rates—they were what the providers accepted as full payment from BCBS.”[17] The lower negotiated rate was the expense the claimant actually incurred, not the billed charges.
The case of Adley v Privett also supports this idea.[18] In Adley, the claimant was trying to claim two charges where the cost was eventually adjusted to $0. The court held those initial billed charges could not be claimed, because a claimant “cannot claim paid or incurred if charges were not actually recoverable.”[19]
The case of Big Bird Tree v. Gallegos provides an example of when a provider’s billed charges may be recoverable under Haygood.[20] In that case, the uninsured, indigent plaintiff had qualified for an indigent charity program that required him to pay only a small amount. The trial court, however, ruled that, with the damages award, the plaintiff would no longer qualify for the indigent care program and would have to pay the full charges. The trial court therefore awarded the plaintiff the billed charges for his medical expenses. The defense apparently did not challenge the reasonableness of the billed charges or introduce evidence on the reasonable value of the services.
On appeal, the defendants argued that the plaintiff should not receive the full amount of his medical expenses because the medical expenses were not actually “incurred.” The appeals court, however, found, based on Haygood and combined with the collateral source rule, that “allowing a negligent tortfeasor to avoid liability for medical expenses born by a charity program designed to benefit indigent patients, not only results in a windfall to the tortfeasor, it rewards the tortfeasor for injuring an indigent.” The appeals court therefore held the plaintiff could recover the billed charges for his medical expenses as the court considered them to be “incurred.”
The term “reasonable value” is used as a synonym for “fair market value” or “market price.” There are many definitions from different sources, but all involve the neoclassical economic concepts of a price freely arrived at by a willing buyer and a willing seller in a competitive market, with both being fully informed and neither under undue pressure. Black’s Law Dictionary has this definition: “The price that a seller is willing to accept and a buyer is willing to pay on the open market and in an arm’s length transaction; the point at which supply and demand intersect (fair market value).”[21] Another common definition of fair market value is found in IRS Revenue Ruling 59-60. The IRS defines fair market value as “the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.”[22] Because different data points can be considered in determining reasonable value, the term implies a range of values rather than a single value.
Markets for medical services are seldom the “perfectly competitive markets” of economic theory. In any geographic market, there are relatively few hospital systems and few physician groups in many specialties. Individual patients have less information and bargaining power than medical providers. Rates set by government programs are negotiated through a political process by provider organizations and elected or appointed officials representing the payor. Individual providers then decide whether they are willing to accept those rates by participating or not participating in the government program.
Rates in negotiated contracts between providers and private health plans may be the closest approximation of “the point at which supply and demand intersect.” However, a major factor in the negotiated rate in each provider contract is the relative market power of the provider and the health plan. Another factor is the expectations of the provider and health plan on what the effective rate will be in the absence of a contract. The provider would then be an “out-of-network” provider able to balance bill the health plan’s subscribers for the difference between billed charges and the health plan’s allowed amount.
The cost to providers to deliver a service is also relevant in determining reasonable value. CMS considers provider costs in setting Medicare rates.[23] Private health plans have access to cost data for hospitals and other providers that are required to file cost reports with government agencies. They may also be able to construct cost models for physician practices using survey data from physician organizations (e.g., Medical Group Management Association).[24] Reasonable value can be viewed as a range, with Medicare rates at the bottom. Negotiated rates for insurers are the middle of the range. The rates the provider has accepted for patients without insurance and the UCR 80th percentile are toward the top of the range.
[1] Dana Cottone, LLB, MRes, provided substantial research assistance for this paper, and her help is gratefully acknowledged.
[2] “CMS 1500,” Centers for Medicare and Medicaid Services (CMS), https://www.cms.gov/Medicare/CMS-Forms/CMS-Forms/CMS-Forms-Items/CMS1188854, accessed February 6, 2023. Helsinn Cares, “Sample CMS-1450 (UB-04) Claim Form,” https://helsinnreimbursement.com/pdfs/V-AKYN-US-0079-Sample-CMS-1450-Claim-Form.pdf, accessed February 6, 2023.
[3] “HCPCS Quarterly Update,” CMS, https://www.cms.gov/Medicare/Coding/HCPCSReleaseCodeSets/HCPCS-Quarterly-Update, accessed February 6, 2023.
[4] “Subchapter T. Submission of Clean Claims 28 TAC §21.2802 and §21.2803,” https://tdi.texas.gov/rules/2007/documents/21.2802-2803.pdf, accessed February 7, 2023.
[5] “The National Correct Coding Initiative (NCCI),” CMS, https://www.cms.gov/medicare-medicaid-coordination/national-correct-coding-initiative-ncci, accessed February 6, 2023.
[6] “[B]ecause of the way chargemaster pricing has evolved, the charges themselves are not dispositive of what is reasonable, irrespective of whether the patient being charged has insurance.” In re N. Cypress Med. Ctr. Operating Co., Ltd., 559 S.W.3d 128, 133 (Tex. 2018).
[7] “Determining Usual, Customary, and Reasonable Charges for Healthcare Services,” Research and Planning Consultants, LP, July 1, 2022, https://www.rpcconsulting.com/determining-ucr-charges-for-healthcare-providers. (Hereafter cited as RPC UCR White Paper.)
[8] Dartmouth Atlas of Healthcare, Dartmouth Atlas Project, https://www.dartmouthatlas.org, accessed February 6, 2023.
[9] See, e.g., Price Management Information Corporation, Medical Fees Directory 2023 E-Book, https://www.pmiconline.com/product-page/medical-fees-directory-2023-e-book, accessed June 30, 2022.
[10] RPC UCR White Paper, starting on p. 17.
[11] Texas Civil Practice and Remedies Code 41.0105, https://statutes.capitol.texas.gov/Docs/CP/htm/CP.41.htm#41.0105.
[12] Aaron Glenn Haygood v. Margarita Garza De Escabedo, 356 S.W.3d 390 (Tex. 2011).
[13] Ibid.
[14] Meenakshi S. Prabhakar, MD, and Infectious Disease Doctors, PA, v. David Fritzgerald, No. 05-10-00126-CV, 2012 Tex. App. LEXIS 7154 (Tex. App. Aug. 24, 2012).
[15] Ibid.
[16] Farmers Texas County Mutual Insurance Company v. Rodney Beasley, 598 S.W.3d 237 (Tex. 2020).
[17] Ibid.
[18] Larry Derome Adley v. Kevin Wayne Privett, No. 05-12-01581-CV, 2014 Tex. App. LEXIS 7447 (Tex. App. July 9, 2014).
[19] Ibid.
[20] Big Bird Tree Service Inc. v. Julian Gallegos, No. 05-10-00923-CV, 365 S.W.3d 173 (Tex. App. 2012).
[21] Bryan A. Garner, ed., Black’s Law Dictionary, 5th pocket edition (St. Paul, MN: Thomson Reuters, 2016), s.v. “reasonable value.”
[22] IRS Revenue Ruling 59-60, 1959-1 CB 237 — IRC Sec. 2031 (Also Section 2512) (Also Part II, Sections 811(k), 1005, Regulations 105, Section 81.10.)
[23] “Medicare Rates as a Benchmark: Too Much, Too Little, or Just Right?” Altarum Healthcare Value Hub, Research Brief No. 40, February 2020, https://www.healthcarevaluehub.org/advocate-resources/publications/medicare-rates-benchmark-too-much-too-little-or-just-right, accessed February 6, 2023.
[24] “Benchmarking Data: DataDive Cost and Revenue Data,” Medical Group Management Association, https://www.mgma.com/data/benchmarking-data/costs-revenue-data, accessed February 6, 2023.
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