Big Changes in "Collateral Sources"
The Minnesota Supreme Court in Swanson v. Brewster has dramatically altered the landscape of personal injury litigation. The case interprets (some would say it "recreates") Minn. Stat. § 548.251 (originally Minn. Stat. § 548.36) which was enacted by the legislature in 1986. This is the so-called "collateral source" statute.
Prior to 1986 if an injured plaintiff received medical insurance benefits, disability insurance benefits, or other money or services as a result of an injury, that had no effect on her entitlement to tort damages. In effect, she could recover twice for the same claim. Conversely, the negligent tortfeasor was not allowed to benefit from the fact that a plaintiff had purchased, or had available, other modes of compensation.
The legislature addressed this "windfall," "double recovery" or "collateral source" issue, overcoming the longstanding common law, by creating a post-verdict mechanism to reduce or "offset" jury awards for specific, identifiable benefits the plaintiff received before trial. Those specific benefits were labeled "collateral sources," defined in the statute to mean "payments related to the injury or disability in question made to the plaintiff, or on the plaintiff's behalf, up to the date of verdict" for:
- Disability or workers' compensation benefits,
- Public programs providing medical or disability benefits,
- Health, accident or automobile insurance providing health or income disability coverage, and
- Employer-funded wage continuation plans.
The issue presented in Swanson was whether these "payments" to be offset or subtracted from a plaintiff's verdict include amounts that no one pays, the "discount" negotiated between the health insurer and the medical provider.
The Supreme Court in Swanson held that "payments related to the injury or disability" include the amount by which medical bills are discounted pursuant to the contract between the medical provider and the plaintiff's health insurer. The Supreme Court characterized this holding as the "ordinary and plain meaning of the words "pay" and "payment…." But it might be noted in response that it took Justice Paul Anderson thirty-five pages to explain that "plain meaning;" that rarely have opinions of the Minnesota Supreme Court contained such sharp exchanges between majority and dissenting justices; and that in numerous pre-Swanson opportunities the Court of Appeals read the statute quite differently.
Regardless, the impact will be enormous, especially in larger cases. Health insurers routinely negotiate discounts in the range of 30% to over 50% of billed charges. An insurer for a severely injured accident victim might pay, for example, no more than $600,000 to resolve $1 million in doctor and hospital charges. The plaintiff in such a case no longer possesses the claim for the $400,000 "discount" or differential between the amount paid and the amount billed.
There are several practical consequences of this decision, and likely many more strategies parties will devise to either counteract or take advantage of the new reading of the collateral source statute. Most obviously, the decision cuts into the net value of many injury claims since the invoiced value of medical services can no longer be recovered if the bills have been paid at discounted value. Quite simply, with the stroke of a pen, the value of personal injury claims has been radically changed. Next, defendants will have a lot less incentive to negotiate independently to resolve or buy an assignment of the lien so as to eliminate the subrogation claim for the discounted amount, if there is one. It may still be advantageous for either party to own the subrogation claim, but the value is likely to be much closer to the amount paid rather than the amount billed.
There are rare circumstances where the plaintiff might be in a position to bring a subrogation claim. For example, a plaintiff may partially resolve a claim with a primary layer of coverage, purchase the assignment of the subrogation claim and then present the injury claim, with enhanced value, to the secondary insurer. Some attorneys representing plaintiffs believe that since the "discount" had economic value they can purchase the assignment for that claim, as well. But Swanson does not appear to be consistent with such an effort, at least based upon its statement of the public policy promoted by the decision.
Plaintiffs will likely try to find new ways to position medical expenditures before trial. They may attempt to delay the presentation of bills to medical insurers or the appeal of denials.
Finally, plaintiffs will reconsider the presentation of claims for paid medical expenses at trial. Minn. Stat. § 548.251, subd. 5 prohibits the court or counsel from informing the jury of the existence of collateral sources and offsets. So the jury may erroneously assume that the defendant will have to pay any amount awarded for medical expenses. If the entire bill is to be offset and the "discount" or "gap" cannot be claimed, the plaintiff may have no incentive to make a claim for the bill at trial. In some cases there still may be strategic reasons to offer evidence of the amount of the bill (e.g. to prove a "threshold," Minn. Stat. § 65B.51, subd. 3, or to give the jury a sense of case value) without actually making the claim for reimbursement of expenses. But there is clearly risk in presenting a substantial claim that, unbeknownst to the jury, has no value: the biggest risk is that they will award that claim and, as a consequence or quid pro quo, negotiate a compromise or reduction of the claims that do actually have value to the plaintiff.