Tuesday, August 16, 2016

New Questions about Evidence of Past Medical Expenses

By Helen Emerson

Section 41.0105 of the Texas Civil Practice and Remedies Code provides, “In addition to any other limitation under law, recovery of medical or health care expenses incurred is limited to the amount actually paid or incurred by or on behalf of the claimant.”  

In Haygood v. De Escabedo, the Texas Supreme Court held that section 41.0105 “limits recovery, and consequently the evidence at trial, to expenses that the provider has a legal right to be paid.”  356 S.W.3d 390, 391 (Tex. 2011).  

The Haygood Court held that “‘actually paid and incurred’ means expenses that have been or will be paid, and excludes the difference between such amount and charges the service provider bills but has no right to be paid.”  Id. at 396-97 (Tex. 2011).  Thus, Medicare adjustments and insurance credits/reductions made to the provider’s billed charges are not recoverable medical expenses.  See id.  The Court reasoned that “[t]o impose liability for medical expenses that a health care provider is not entitled to charge” creates a windfall for the claimant.  Id. at 395.  

With that background in mind, consider the case of Katy Springs & Manufacturing, Inc. v. Favalora.**1   In Favalora, the plaintiff was uninsured and incurred approximately $200,000 in medical expenses from various medical providers.  Favalora entered into contracts with providers and assigned his interest in any proceeds that might be recovered.  The medical providers then sold, at a discount, those accounts receivable to MedStar Funding.
The defendant asserted that a plaintiff is only entitled to recover the amounts actually *paid to the provider.  The medical providers accepted an amount less than the amounts charged for their services from MedStar.  Thus, the defendant argued that the trial court erroneously admitted the invoices showing the full amounts charged by the medical providers because only the amounts paid by MedStar to the provider were admissible, constituting the amounts actually paid to the medical providers.  

The Favalora appellate Court disagreed.  The Court  drew an analogy between *Favalora and Big Bird Tree Service v. Gallegos, 365 S.W.3d 173 (Tex. App.—Dallas 2012, pet. denied).  In Gallegos, the indigent plaintiff received his medical expenses free of charge.  The evidence showed that if the hospital learned that the plaintiff became able to pay the medical expenses, the hospital would collect its expenses from the plaintiff.  The Gallegos Court held that the plaintiff was not precluded from recovering past medical expenses because (1) there was no contract prohibiting the hospital from charging full value of the services and (2) the plaintiff remained liable for the value of the medical services if he were to recover sufficient funds by other means.  

Thus, the appellate Court held that Favalora was entitled to admit the full amounts charged by the medical providers as evidence of his past medical expenses and that the defendant was not entitled to introduce evidence showing the amounts MedStar paid the providers in satisfaction of Favalora’s accounts.  In so holding, the Court reasoned that MedStar “steps into the shoes” of the medical providers, giving MedStar the same ability to pursue payment of Favalora’s medical bills.  

The defendant, Katy Springs, filed a petition of review with the Supreme Court, which was denied.  Katy Springs then filed a motion for rehearing, which is currently pending before the Supreme Court.  The defendant and Texas Association of Defense Counsel, writing as amicus curiae, argue that the Court’s ruling sidesteps section 41.0105’s limitation on recovery and creates a judicial exception to the limitation that allows a windfall for factoring companies and their plaintiff-customers.  

And yet more questions arise under the appellate Court’s ruling.  Under section 18.001 of the Texas Civil Practice and Remedies Code, “an affidavit that the amount a person charged for a service was reasonable at the time and place that the service was provided and that the service was necessary is sufficient evidence to support a finding of fact by judge or jury that the amount charged was reasonable or that the service was necessary.”  TEX. CIV. PRAC. & REM. CODE § 18.001(b).  The affidavit must be made by “the person who provided the service” or “the person in charge of records showing the service provided and charge made.”  Id. § 18.001(c)(2).  

In Favalora, the appellate Court held that an affidavit made by the president of MedStar was compliant with section 18.001.  The same Court has also held that section 18.001 affidavits signed by the subrogation units of plaintiff’s medical insurers were also compliant.  See Gunn v. McCoy, 489 S.W.3d 75, 108 (Tex. App.—Houston [14th Dist.] 2016, pet. filed).  Citing Katy Springs, the Gunn Court stated, “This court recently has determined there is no requirement that an affidavit submitted under section 18.001(c)(2)(B) be made by a records custodian for a medical provider.”  Id.

Thus, the additional questions before the Supreme Court arising from the Favalora case are who is “the person in charge” of plaintiff’s medical records showing the services provided and charges made?  And must the affiant have personal knowledge of the services and the charges therein or does possession of the medical billing records provide sufficient knowledge?  We await the Supreme Court’s ruling.

**1  See Katy Springs & Mfg. v. Favalora, 476 S.W.3d 579, 601 (Tex. App.—Houston [14th Dist.] 2015, pet. filed).  

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