“Paid and Incurred” Ruling by the Texas Supreme Court

In a significant opinion on July 1, 2011, the Texas Supreme Court issued a ruling on the issue of “paid or incurred” medical expenses and the collateral source rule. In Haygood v. De Escabedo, --S.W.3d --, No. 09-0377 (Tex., July 1, 2011), Margarita Escabedo sued Aaron Haygood for injuries Escabedo sustained in an automobile accident. Escabedo’s health care providers billed her a total of $110,069.12 for their services, but the amount was adjusted to $27,739.43 pursuant to an agreement with Medicare. Asserting the collateral source rule, Haygood moved to exclude any amounts other than those billed, and of any adjustments and payments. The trial court denied the motion and the jury heard evidence from all of Plaintiff’s health care providers that the charges billed were reasonable and the services necessary. The jury awarded the full amount of the billed medical expenses, including those that were in excess of the amount actually paid by Medicare. The Court of Appeals reversed the trial court’s decision, holding that section 41.0105 precluded evidence or recovery of expenses that “neither the claimant nor anyone acting on his behalf will ultimately be liable for paying.” De Escabedo v. Haygood, 283 S.W.3d 3, 7 (Tex. App.—Tyler 2009). Haygood rejected the Court of Appeal’s suggestion of a remittitur in the amount of the health care providers’ adjustments, and the case was remanded for a new trial. Id. at 8.

The Texas Supreme Court affirmed the Court of Appeals’ judgment, and decided that Plaintiff could only recover the amount that Medicare actually paid the health care service providers. The Court discussed the collateral source rule and the theory behind it, stating that imposing liability for medical expenses that a health care provider is not entitled to charge does not prevent a windfall to a tortfeasor, but instead creates one for a claimant. The court held that the collateral source rule does not allow recovery of damages of medical expenses that a health care provider is not entitled to charge.

Haygood also argued that a claimant incurs the full charges billed by a provider, even if the provider is required by law or contract to reduce the charges because claimant is covered by insurance. Haygood viewed the word “actually” modifying only “paid” or that the first “incurred” and the second “incurred” mean the same thing. The Court disagreed and found that the term “incurred” is modified by “actually”, meaning 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.

Significantly, the Court held that evidence of the medical charges that a provider is not entitled to be paid is irrelevant and inadmissible. Haygood argued that if he was not insured, his medical expenses would not be subject to adjustments or credits, and evidence of the more expensive treatment would suggest his injuries were serious. Haygood wanted the jury to consider evidence of non-recoverable economic damages in setting the non-economic damages. However, the Court determined that any relevance was substantially outweighed by the confusion it would likely generate, and decided it must be excluded.

This is an important decision because the court has clarified how the “paid or incurred” statute should be applied. Before this decision, there was an ongoing debate in the law on how Texas Civil Practices and Remedies Code Section 41.0105 was implemented by some trial courts. Many courts would allow plaintiffs to submit the total of the medical bills to the jury and then apply the reduction to the award of past medical bills after the verdict. Unfortunately, this typically resulted in the total award given by a jury generally being higher in the “general damage” elements (e.g. pain and suffering) because juries often base the so-called “general damages” on the amount of medical bills and lost wages (“hard damages”). Now the Supreme Court has made clear that Section 41.0105 must be applied before the jury is presented any evidence of medical bills. The net effect of this ruling should be lower jury awards overall across the state. This ruling is an important ruling for practitioners in trial as well as insurers, insureds or defendants as they consider settlement offers and set reserves accordingly.

Loser Pays? New Texas Legislation

House Bill 274, colloquially called the Loser Pays act, goes into effect September 1, 2011. H.B. 274 § 6.02. The act is not retroactive, so it will only apply to suits brought on or after the effective date. Id. § 6.01. The act has five primary sections that will impact our practice: 1. early dismissal of actions; 2. expedited civil actions; 3. appeal of controlling question of law; 4. allocation of litigation costs; and 5. designation of responsible third parties.

1. Early Dismissal of Actions

The act amends Section 22.004, or the Government Code, to require the Texas Supreme Court to “adopt rules to provide for the dismissal of causes of action that have no basis in law or fact on motion and without evidence.” Id. § 1.01. The court will have to rule on the motion within 45 days. Id. In conjunction, the act amends Chapter 30 of the Civil Practice and Remedies Code to require courts to “award costs and reasonable and necessary attorney’s fees to the prevailing party” of a motion under Section 22.004. Id. § 1.02. The requirements to comply with this section are unknown right now because the supreme court has not promulgated rules under Section 22.004 yet.

2. Expedited Civil Actions

The act also amends Section 22.004 to require the supreme court to “adopt rules to promote the prompt, efficient, and cost-effective resolution of civil actions” in which damages are $100,000 or less. Id. § 2.01. Again, the supreme court has not promulgated these rules yet.

3. Appeal of Controlling Question of Law

The act gives trial courts the power to permit an appeal of an order under Section 51.014 of the Civil Practice and Remedies Code that involves “a controlling question of law as to which there is substantial ground for difference of opinion” and “an immediate appeal from the order may materially advance the ultimate termination of the litigation.” Id. § 3.01. The act goes on to provide another judicial check for appellate courts in that the appellate court has discretion on whether or not to accept the appeal. Id. Therefore, the practical effect is the new motion that will be available under Section 51.014(d).

4. Allocation of Litigation Costs

The act amends the allocation of litigation costs under the “offer of settlement” rule. Section 42.004(d) will allow both the plaintiff and defendant to recover litigation costs, but the award of litigation costs “may not be greater than the total amount that the claimant recovers or would recover before adding an award of litigation costs under this chapter in favor of the claimant or subtracting as an offset an award of litigation costs under this chapter in favor of the defendant.” Id. § 4.04. The rest of Chapter 42 remains the same for the most part, but reasonable deposition costs are now included in litigation costs. Id. The derogative “Loser Pays and Sometimes Winners Pay Act” title comes from this section because the section removes the limits on the litigation costs imposed under the offer of settlement rule. For example, if a plaintiff wins a lawsuit but has rejected a settlement offer that otherwise fits the requirements to impose litigation costs on the plaintiff under Chapter 42, then the plaintiff may end up owing litigation costs that exceed the award recovered in trial.

5. Designation of Responsible Third Parties

The act prohibits a defendant from designating a person as a responsible third party after the limitations period has expired for the claimant’s cause of action against the responsible third party “if the defendant has failed to comply with its obligations, if any, to timely disclose that the person may be designated as a responsible third party un the Texas Rules of Civil Procedure.” Id. § 5.01. Apparently, the rule is intended to punish defendants that intentionally conceal the identity of responsible third parties until after the limitations period has run thereby eliminating the claimant’s recovery.

"Three techniques to use in questioning a witness" by Michael P. Maslanka

A goal in questioning a witness is to get him to agree to your question or make him look bad by not doing so. Here are three techniques.

1. Is this a fair summary? Here, you summarize facts on a point (tipped in your favor) and ask, "Is this a fair summary?" As long as you are looking for a single or a double, not a home run, this can work. The natural tendency of a witness is to answer "Yes" and not fight you on the slight slant.

2. Can you accept the fact? You can ask a witness if she agrees with you on a point, or you can ask if she understands your client's viewpoint. Usually these do not work. Try this instead: "Can you accept the fact that (fill in what you want her to agree to)?" If she says yes, fine; if she says no, the predicate in the question makes her sound unreasonable.

3. Take it to the limit one more time. That's a line from a song by the Eagles. Use it as a technique when a witness will not agree with anything you want him to affirm. So, "Are you saying that your manager had no redeeming qualities whatsoever?" I won a summary judgment with that question; in his order, the judge dropped a footnote citing the Q and A, with the A being "Yes," and concluding that this was a case of a personality conflict, not discrimination.