When you are presenting a personal injury claim to the insurance company, one of your first concerns might be how to calculate medical damages. Years ago, you would simply add up all medical expenses incurred as a result of the accident and present them for reimbursement. Since October 1, 2011 in North Carolina, the rules of the game have changed. Now, accident victims must introduce evidence of medical expenses in a manner that does not strengthen their claim for damages.
Rule 414 of the North Carolina Rules of Evidence was amended in 2011 to significantly limit a plaintiff’s ability to present evidence of medical damages at trial. Specifically, the rule makes a distinction between the original amount that was billed by a healthcare provider and what was paid to satisfy those medical bills, regardless of how the bills are paid.
Prior to Rule 414, North Carolina’s Collateral Source Rule provided that evidence of the amount a plaintiff’s health insurance paid to satisfy medical bills was inadmissible at trial. However, the new version of Rule 414 clearly changes how accident victims can present their damages. This new rule is known as “billed versus paid.”
In order to understand the “billed versus paid” concept and the rule’s broad-reaching implications, it is important to first look at the language of Rule 414.
Rule 414. Evidence of Medical Expenses:
“Evidence offered to prove past medical expenses shall be limited to evidence of the amounts actually paid to satisfy the bills that have been satisfied, regardless of the source of payment, and evidence of the amounts actually necessary to satisfy the bills that have been incurred but not yet satisfied. This rule does not impose upon any party an affirmative duty to seek a reduction in billed charges to which the party is not contractually entitled.” (2011-283, s. 1.1; 2011-317, s. 1.1.)
Prior to the change in Rule 414, accident victims were able to present damages as the total amount billed by the healthcare provider. Now, only the total amount paid by health insurance or the patient can be considered compensable medical damages.
So, why does this matter? The reason it matters to those with health insurance is that health insurance companies take a significant reduction in what they pay to satisfy your medical bills, so you can only receive compensation for what is paid by health insurance rather than the original amount billed by the health care provider for services rendered. The following example clearly illustrates this problem.
Tim and Joe are in an auto accident and they are subsequently treated at the same hospital for the same injuries. They have X-rays performed in addition to other tests and the total charges for each of their hospital visits is $1,000. Tim has a Blue Cross Blue Shield (BCBS) health insurance plan, and Joe does not have any active health insurance coverage.
Tim’s BCBS plan covers his entire hospital bill but BCBS’s contractual agreement with the hospital only requires them to pay 60 percent of the bill, or $600, and Tim has a $50 co-pay. Under the new Rule 414, if Tim were to file a lawsuit and take his case to trial, Tim could only include the $600 paid by his health insurance plus the $50 co-pay as damages. Prior to the rule’s amendment, Tim could have included the full $1,000 bill before insurance was applied.
Joe, on the other hand, can still include $1,000 in damages under the new Rule 414 because he did not have an active health insurance plan at the time of the accident.
Of course, the logical conclusion that one might draw from the above example is that the discrepancy can be explained by the fact that Joe still has a $1,000 hospital bill that he must pay back to the hospital and Tim does not.
This example is simplified and only involves a single hospital bill and no additional treatment. Imagine what the disparity would be when an accident victim needed medical treatment for months or years. Moreover, many health insurance plans take a massive contractual reduction on what they pay physical therapists and chiropractors for their services, which adds greatly to the disparity. Government-sponsored insurance, such as Medicare and Medicaid, also receives significant discounts from medical providers and hospitals.
If your case is still in the early stages and you anticipate reaching a settlement without having to resort to litigation, you may think that Rule 414 will not affect your claim because it is a Rule of Evidence. This is unfortunately not the case.
In terms of legal application of the rule, such an assumption would be accurate, but from a practical standpoint, the rule has dramatically tipped the scales in favor of the insurance companies. As a result, the insurance companies claim that they should calculate medical damages in settlement negotiations in the same way that the courts would during trial, using Billed vs. Paid.
During the claims process, the insurance adjuster will likely request itemized billing in order to determine what your health insurance provider paid to satisfy your medical expenses. If an accident victim claims to have no health insurance, the insurance adjuster will likely demand an Affidavit of No Health Insurance. Most insurance adjusters have been trained on how to apply Rule 414, and he or she will use it as liberally as possible to reduce the value of your claim.
However, be aware of insurance adjusters who have misinterpreted the rule and are applying it to situations in which it does not actually apply, such as in the following example:
Ben is in an auto accident and he incurs a $1,000 hospital bill, but he does not have health insurance. Thus, the hospital bills the charges as self-pay. The bill arrives in the mail a few weeks later, and Ben sends a copy of the bill to the other driver’s insurance company, but does not attempt to negotiate the bill with the hospital.
A few months later, Ben is negotiating his claim with an insurance adjuster, Jill, who tells Ben that the insurance company will not include the full $1,000 bill in the settlement because Ben had not attempted to mitigate his damages by contacting the hospital and asking them to lower the bill.
Ben accepts Jill’s statement as accurate and calls the hospital to negotiate the bill. He is able to have it reduced to $500 and the new bill is mailed to Ben. When Ben next speaks with Jill, he tells her that the bill was reduced and Jill includes the newly reduced $500 bill into the settlement offer.
In the above example, Jill’s statement to Ben that he had a duty to mitigate his damages is inconsistent with the last sentence of Rule 414, which states that a party has no duty “to seek a reduction in billed charges for which the party is not contractually entitled.” Therefore, Ben was not contractually entitled to have his hospital bill reduced, as he was a self-pay and had to negotiate with the hospital to get the bill reduced. As a result, Ben has lost out on $500 because the insurance adjuster misapplied or misrepresented Rule 414 and Ben accepted it without doing his own research.
In theory, waiting until after you have received full settlement value to submit medical bills to your health insurance seems like a solution, but insurance companies have become aware of this scheme in recent years and now have several ways of making life difficult for those who do not submit their bills to their health insurance.
One method is requiring claimants to sign health insurance affidavits affirmatively stating that there was no available health insurance to cover treatment. If you misrepresent your health insurance coverage on this form, you will be exposing yourself to criminal and/or civil proceedings for fraud or perjury. Once the insurance company has received the affidavit or proof of health insurance, they will advise you to send the itemized bill showing the amounts that the insurance company has paid for your medical treatment. In the event that you do not have health insurance, your itemized billing may reflect self-pay discounts.
By focusing on the amounts that were paid to satisfy medical bills, Rule 414 has shifted the attention away from plaintiffs’ injuries. Rule 414 has almost certainly had a negative influence on some less discerning jurors, as they may see a low dollar amount for damages and write off the seriousness of the plaintiff’s injuries. This can result in jury verdicts with less money being awarded for pain and suffering. Juries may not consciously realize that they are awarding less than the norm for pain and suffering, but it is not hard to see how a jury might come to the conclusion that lower medical bills equal lesser injuries.
Currently, there is no legal precedent that would prevent plaintiffs from receiving Medical Payments coverage for the original amounts billed by healthcare providers, regardless of whether or not health insurance paid a lower amount to satisfy the bill(s). However, the law is constantly changing and the insurance companies are likely already lobbying for MedPay reform.
A recent case, Pollard v. Huber, challenged the constitutionality of Rule 414, and a three-judge panel ruled against them, finding that the rule was not unconstitutional. The order can be found here – Pollard v. Huber – Order. There will likely be further developments refining the rule’s application to other legal situations in the near future.
While it is difficult to think of Rule 414 as new, there are many aspects of this Rule of Evidence that have created more questions than answers. In the interest of providing visitors to this website as much information as possible here is a link to a break down of what numerous other states do and don’t do as it relates to Billed v. Paid. The article is titled, “BILLED v. PAID: PRESENT, PAST, FUTURE” and it was written by Burton Craige of Patterson Harkavy LLP, Raleigh, NC on September 6, 2011.