Free Response to Motion - District Court of Arizona - Arizona

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Kathleen L. Wieneke, Bar #011139 Jennifer L. Holsman, Bar #022787 JONES, SKELTON & HOCHULI, P.L.C. 2901 North Central Avenue, Suite 800 Phoenix, Arizona 85012 Telephone: (602) 263-1700 Fax: (602) 200-7858 [email protected] [email protected] Attorneys for Defendants City of Phoenix, Griffin, Dunn, Lynde and Monson UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Teresa August, et al, Plaintiff, v. The City of Phoenix, et al, Defendant. NO. CV03-1892-PHX-ROS DEFENDANTS' RESPONSE TO PLAINTIFF'S MOTION IN LIMINE NO. 10 RE: COLLATERAL SOURCE OF PAYMENT FOR TERESA AUGUST'S MEDICAL BILLS

Defendants respond in opposition to Plaintiff's Motion in Limine No. 10 Regarding Collateral Source of Payment for Teresa August's Medical Bills. Plaintiff's Motion must be denied because she bears the burden of proving the reasonable value of medical services provided. Nothing in Arizona law holds that unpaid "billed charges" equal reasonable value. Rather, the jury determines what is reasonable, and to make that determination it must hear all appropriate evidence of reasonableness, including what was actually paid for her care. I. BACKGROUND As part of her damages, Plaintiff Teresa August seeks medical expenses. According to her records, $29,779.89 was paid for her medical care, but $49,095.44 was

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"billed."1 Like most healthcare providers, Plaintiff's providers list a "billed charge" on their invoices that is much higher than what they normally receive for such services due to contracts with insurance companies. The billed charge is rarely collected. See, e.g., Temple University Hospital v. Healthcare Management Alternatives, 832 A.2d 501, 506 (Pa. Super. 2003) (expert testified that a hospital collected its full published charges in only 1-3% of cases, and that published charges were three times the hospital's actual cost). In most cases, it is a phantom charge used for accounting purposes that bears no relation to the reasonable value of medical services provided. In this case, the amount actually paid for medical services was only 61% of the "billed charge." II. PLAINTIFF MUST PROVE THE REASONABLE VALUE OF MEDICAL SERVICES There is no dispute that Plaintiff is entitled to recover reasonable medical expenses. See, e.g., Restatement (Second) of Torts § 924(c) (1977). The measure of damages, however, is neither what was charged nor what was paid, but rather the reasonable value of the service. See 2 DAN B. DOBBS, LAW OF REMEDIES § 8.1(3), at 376 (2d ed. 1993) ("The measure of recovery is not the cost of services or appliances needed but their reasonable value."); Restatement § 924, cmt. f ("The injured person is entitled to damages for all expenses and for the value of services reasonably made necessary by the harm."). This concept is reflected in the Recommended Arizona Jury Instructions, which state that a plaintiff may recover "[r]easonable expenses of necessary medical care, treatment and services rendered." RAJI (CIVIL) 4TH PERSONAL INJURY DAMAGES 1. Nothing in Arizona law holds that "billed charges" are per se reasonable, or even prima facie evidence of reasonableness. Cf. LaBombard v. Samaritan Health

System, 195 Ariz. 543, 552, 991 P.2d 246, 255 (App. 1998) ("billed charges" are not

1

See Billed v. Actual Summary, attached hereto as Exhibit 1.

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necessarily "customary charges"). In fact, the billed charge may represent nothing at all. It may be the healthcare provider's starting point for negotiations with health insurers, much like the sticker price of a new car. It may be an amount paid only by the uninsured. See Vencor v. Nat'l States Ins. Co., 303 F.3d 1024, 1029 n.9 (9th Cir. 2002) (in the world of managed care, "providers' supposed ordinary or standard rates may be paid by a small minority of patients"); Temple University Hospital, 832 A.2d at 505-06 (hospital CFO testified that it rarely recovers its published rate, and 94% of the time receives 80% or less of its published charges). So which is the reasonable value of medical services, the billed charge or the paid charge? In Arizona, the jury decides. To make that decision, it must know what was actually paid for Plaintiff's medical care. And both parties are entitled to introduce evidence regarding the bases for both the billed charges and the paid charges, which is relevant to the jury's determination of reasonable value. See, e.g., Larson v. Decker, 196 Ariz. 239, 243-44, 995 P.2d 281, 285-86 (App. 2000) (if the records and bills do not themselves show a connection between the treatment reflected on them and the issues in the case, other evidence is needed before they can be admitted) III. LOPEZ V. SAFEWAY DOES NOT HOLD THAT BILLED CHARGES EQUAL REASONABLE EXPENSES Plaintiff relies on Lopez v. Safeway Stores, Inc., 212 Ariz. 198, 129 P.3d 487 (App. 2006), but that case actually supports allowing the jury to determine what constitutes reasonable value. Lopez was a personal injury case in which the plaintiff sought medical expenses as damages. The defendant moved in limine to bar evidence of the unpaid billed charges, but stipulated that the plaintiff's medical records reflected "reasonable and customary medical expenses to the extent of the Court's ruling on the Defendant's Motion in Limine." 212 Ariz. at 200, 129 P.3d at 489. The court of appeals affirmed, holding

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that the plaintiff was entitled to recover the full billed charges. Id. at 208, 129 P.3d at 497. The court did not hold, however, that billed charges always equal reasonable value. It held that they equaled reasonable value in that case because the defendant did not contest the issue: At oral argument in this court, Safeway contended the medical bills reflecting the higher amount had "nothing to do with anything" because they were largely illusory or "phantom." But, as noted earlier, Safeway stipulated that all of Lopez's medical bills would "be deemed as reasonable and customary medical expenses" for trial purposes. 212 Ariz. at 202, 129 P.3d at 491. Indeed, the court expressly noted that reasonable value was not at issue due to the defendant's stipulation. "Because of that stipulation," it held, "the question whether the $16,837 actually paid was, in fact, the reasonable value of the medical services rendered was not preserved for appeal." Id. at 202 n.4, 129 P.3d at 491 n.4. What Lopez does hold is that a plaintiff's medical expense damages are measured by the reasonable value of medical services provided. See 212 Ariz. at 204, 129 P.3d at 493 ("The injured person is entitled to damages for all expenses and for the value of services reasonably made necessary by the harm. . . .") (quoting Restatement § 924, cmt. f). This may be more than what was paid, or it may be less. But ultimately that is an issue for the jury to decide. None of this violates the collateral source rule. A "discount" off of a healthcare provider's billed charge is only a collateral benefit if the billed charge represents the reasonable and customary charge for the service. If, as is typically the case, almost no one pays the billed charge, then the amount paid is not a discount at all, and therefore not a collateral benefit.

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To the extent Plaintiff is concerned that the jury will learn that medical bills were paid by insurance, Defendants have no objection to an appropriate limiting instruction. IV. CONCLUSION For the foregoing reasons, Defendants respectfully request that the Court deny Plaintiff's Motion in Limine No. 10. DATED this 29th day of November, 2006. JONES, SKELTON & HOCHULI, P.L.C.

By /s/Jennifer L. Holsman Kathleen L. Wieneke Jennifer L. Holsman 2901 North Central Avenue, Suite 800 Phoenix, Arizona 85012 Attorneys for Defendants City of Phoenix, Griffin, Dunn, Lynde and Monson

Electronically filed and served this 29th day of November, 2006, to: ALL PARTIES ON ELECTRONIC SERVICE LIST COPY mailed this same date to: The Hon Rosalyn O. Silver United States District Court Sandra Day O'Connor U.S. Courthouse, Suite 624 401 West Washington Street, SPC 59 Phoenix, Arizona 85003

s/Peggy Sue Trakes

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Kathleen L. Wieneke, Bar #011139 Jennifer L. Holsman, Bar #022787 JONES, SKELTON & HOCHULI, P.L.C. 2901 North Central Avenue, Suite 800 Phoenix, Arizona 85012 Telephone: (602) 263-1700 Fax: (602) 200-7858 [email protected] [email protected] Attorneys for Defendants City of Phoenix, Griffin, Dunn, Lynde and Monson UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Teresa August, et al, Plaintiff, v. The City of Phoenix, et al, Defendant. NO. CV03-1892-PHX-ROS DEFENDANTS' RESPONSE TO PLAINTIFF'S MOTION IN LIMINE NO. 10 RE: COLLATERAL SOURCE OF PAYMENT FOR TERESA AUGUST'S MEDICAL BILLS

Defendants respond in opposition to Plaintiff's Motion in Limine No. 10 Regarding Collateral Source of Payment for Teresa August's Medical Bills. Plaintiff's Motion must be denied because she bears the burden of proving the reasonable value of medical services provided. Nothing in Arizona law holds that unpaid "billed charges" equal reasonable value. Rather, the jury determines what is reasonable, and to make that determination it must hear all appropriate evidence of reasonableness, including what was actually paid for her care. I. BACKGROUND As part of her damages, Plaintiff Teresa August seeks medical expenses. According to her records, $29,779.89 was paid for her medical care, but $49,095.44 was

Case 2:03-cv-01892-ROS

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"billed."1 Like most healthcare providers, Plaintiff's providers list a "billed charge" on their invoices that is much higher than what they normally receive for such services due to contracts with insurance companies. The billed charge is rarely collected. See, e.g., Temple University Hospital v. Healthcare Management Alternatives, 832 A.2d 501, 506 (Pa. Super. 2003) (expert testified that a hospital collected its full published charges in only 1-3% of cases, and that published charges were three times the hospital's actual cost). In most cases, it is a phantom charge used for accounting purposes that bears no relation to the reasonable value of medical services provided. In this case, the amount actually paid for medical services was only 61% of the "billed charge." II. PLAINTIFF MUST PROVE THE REASONABLE VALUE OF MEDICAL SERVICES There is no dispute that Plaintiff is entitled to recover reasonable medical expenses. See, e.g., Restatement (Second) of Torts § 924(c) (1977). The measure of damages, however, is neither what was charged nor what was paid, but rather the reasonable value of the service. See 2 DAN B. DOBBS, LAW OF REMEDIES § 8.1(3), at 376 (2d ed. 1993) ("The measure of recovery is not the cost of services or appliances needed but their reasonable value."); Restatement § 924, cmt. f ("The injured person is entitled to damages for all expenses and for the value of services reasonably made necessary by the harm."). This concept is reflected in the Recommended Arizona Jury Instructions, which state that a plaintiff may recover "[r]easonable expenses of necessary medical care, treatment and services rendered." RAJI (CIVIL) 4TH PERSONAL INJURY DAMAGES 1. Nothing in Arizona law holds that "billed charges" are per se reasonable, or even prima facie evidence of reasonableness. Cf. LaBombard v. Samaritan Health

System, 195 Ariz. 543, 552, 991 P.2d 246, 255 (App. 1998) ("billed charges" are not

1

See Billed v. Actual Summary, attached hereto as Exhibit 1.

2

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necessarily "customary charges"). In fact, the billed charge may represent nothing at all. It may be the healthcare provider's starting point for negotiations with health insurers, much like the sticker price of a new car. It may be an amount paid only by the uninsured. See Vencor v. Nat'l States Ins. Co., 303 F.3d 1024, 1029 n.9 (9th Cir. 2002) (in the world of managed care, "providers' supposed ordinary or standard rates may be paid by a small minority of patients"); Temple University Hospital, 832 A.2d at 505-06 (hospital CFO testified that it rarely recovers its published rate, and 94% of the time receives 80% or less of its published charges). So which is the reasonable value of medical services, the billed charge or the paid charge? In Arizona, the jury decides. To make that decision, it must know what was actually paid for Plaintiff's medical care. And both parties are entitled to introduce evidence regarding the bases for both the billed charges and the paid charges, which is relevant to the jury's determination of reasonable value. See, e.g., Larson v. Decker, 196 Ariz. 239, 243-44, 995 P.2d 281, 285-86 (App. 2000) (if the records and bills do not themselves show a connection between the treatment reflected on them and the issues in the case, other evidence is needed before they can be admitted) III. LOPEZ V. SAFEWAY DOES NOT HOLD THAT BILLED CHARGES EQUAL REASONABLE EXPENSES Plaintiff relies on Lopez v. Safeway Stores, Inc., 212 Ariz. 198, 129 P.3d 487 (App. 2006), but that case actually supports allowing the jury to determine what constitutes reasonable value. Lopez was a personal injury case in which the plaintiff sought medical expenses as damages. The defendant moved in limine to bar evidence of the unpaid billed charges, but stipulated that the plaintiff's medical records reflected "reasonable and customary medical expenses to the extent of the Court's ruling on the Defendant's Motion in Limine." 212 Ariz. at 200, 129 P.3d at 489. The court of appeals affirmed, holding

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that the plaintiff was entitled to recover the full billed charges. Id. at 208, 129 P.3d at 497. The court did not hold, however, that billed charges always equal reasonable value. It held that they equaled reasonable value in that case because the defendant did not contest the issue: At oral argument in this court, Safeway contended the medical bills reflecting the higher amount had "nothing to do with anything" because they were largely illusory or "phantom." But, as noted earlier, Safeway stipulated that all of Lopez's medical bills would "be deemed as reasonable and customary medical expenses" for trial purposes. 212 Ariz. at 202, 129 P.3d at 491. Indeed, the court expressly noted that reasonable value was not at issue due to the defendant's stipulation. "Because of that stipulation," it held, "the question whether the $16,837 actually paid was, in fact, the reasonable value of the medical services rendered was not preserved for appeal." Id. at 202 n.4, 129 P.3d at 491 n.4. What Lopez does hold is that a plaintiff's medical expense damages are measured by the reasonable value of medical services provided. See 212 Ariz. at 204, 129 P.3d at 493 ("The injured person is entitled to damages for all expenses and for the value of services reasonably made necessary by the harm. . . .") (quoting Restatement § 924, cmt. f). This may be more than what was paid, or it may be less. But ultimately that is an issue for the jury to decide. None of this violates the collateral source rule. A "discount" off of a healthcare provider's billed charge is only a collateral benefit if the billed charge represents the reasonable and customary charge for the service. If, as is typically the case, almost no one pays the billed charge, then the amount paid is not a discount at all, and therefore not a collateral benefit.

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1715435.2

To the extent Plaintiff is concerned that the jury will learn that medical bills were paid by insurance, Defendants have no objection to an appropriate limiting instruction. IV. CONCLUSION For the foregoing reasons, Defendants respectfully request that the Court deny Plaintiff's Motion in Limine No. 10. DATED this 29th day of November, 2006. JONES, SKELTON & HOCHULI, P.L.C.

By /s/Jennifer L. Holsman Kathleen L. Wieneke Jennifer L. Holsman 2901 North Central Avenue, Suite 800 Phoenix, Arizona 85012 Attorneys for Defendants City of Phoenix, Griffin, Dunn, Lynde and Monson

Electronically filed and served this 29th day of November, 2006, to: ALL PARTIES ON ELECTRONIC SERVICE LIST COPY mailed this same date to: The Hon Rosalyn O. Silver United States District Court Sandra Day O'Connor U.S. Courthouse, Suite 624 401 West Washington Street, SPC 59 Phoenix, Arizona 85003

s/Peggy Sue Trakes

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