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August 2020 – General Liability Newsletter

The Collateral Source Rule: A Thorn in the Side No More

Mike Walsh, AIC, CPCU

Liability Claims Manager

In cases where settlement negotiations were necessary, our clients have long been frustrated by those attorneys who demanded that settlement include full reimbursement of all billed medical services even when the providers were paid negotiated, discounted or capitated rates. The “collateral source rule” allowed attorneys to take such a hard line in cases where liability was clear. The “collateral source rule” mandated that a tort plaintiff be awarded the full value of his medical expenses when the plaintiff paid some consideration, such as a healthcare insurance premium, for the benefit of the discounted amount.

In recent years court decisions have watered down the collateral source rule in Louisiana to some extent although, up until now, not in regard to third-party liability claims.

In one case, a hospital was attempting to recover on its medical lien against the patient for the full amount of the medical services charged– without accounting for the patient’s health insurance discount. The court ruled that the hospital could only recover the rate negotiated between the hospital and the patient’s health insurer.

Another case features an injured party who attempted to recover the full amount of medical services charged under the Medical Payment coverage of her auto policy, even though the medical providers were paid less than the billed charges pursuant to rates negotiated with the individual’s health insurer. The Louisiana Supreme Court ruled that because she had no liability for any amount over the discounted rate, she did not incur the full charged rates and therefore could not recover them.

These recent rulings leave attorneys with the foundation to argue that insured plaintiffs are only entitled to the contracted rate, or the amount actually incurred.[1] Again, up until now, the only exception to the collateral source rule in direct third-party liability claims applied to state Medicaid liens. THAT IS NO LONGER THE CASE. Effective January 1, 2021, the Louisiana legislature has amended the Code of Civil Procedure and the Code of Evidence so that:

“In cases where a claimant’s medical expenses have been paid, in whole or in part, by a health insurance issuer or Medicare to a contracted medical provider, the claimant’s recovery of medical expenses is limited to the amount actually paid to the contracted provider by the health insurance issuer or Medicare, and any applicable cost-sharing amounts paid or owed by the claimant, and not the amount billed.”

[1] Injured Plaintiffs’ Recovery of Imaginary Medical Costs. (2017). Lana D. Crump and Amanda Collura-Day. Louisiana Law Blog.

If you have any questions related to this newsletter, please contact:

Mike Walsh, AIC, CPCU
Liability Claims Manager
Glenn Eiserloh, CHSP
Senior Risk Consultant
Steve Johnson, COSS, CHSP, COEE
Senior Risk Consultant