A (Collateral) Source of Optimism Regarding Medical Costs in Louisiana

The 2020 Louisiana Legislative Session ended with the passage and signing of the Civil Justice Reform Act of 2020 (House Bill 57), which brings long-awaited change to Louisiana’s “Collateral Source Rule.”  For years, plaintiffs in Louisiana have been entitled to receive the sometimes-inflated full amount stated on their medical bills, often far in excess of the amount actually paid for their medical care.  As such, plaintiffs could obtain a windfall by demanding the face value of medical costs when their health insurer or Medicare actually paid cents on the dollar for the medical charges.  This often stood as a major impediment to settlement and led to increased litigation costs for defendants.

Under the new law, an insured plaintiff’s recovery of medical expenses “is limited to the amount actually paid” for medical treatment, plus some consideration for the amount the plaintiff pays for health insurance.  Plaintiffs are no longer entitled to “the amount billed.”  This marked change in recoverable medical costs should facilitate settlement, decrease judgments, and eventually lower insurance premiums in Louisiana.

BACKGROUND

What is the Collateral Source Rule?

As the Louisiana Supreme Court has explained, “Under the collateral source rule, a tortfeasor may not benefit, and an injured plaintiff’s tort recovery may not be reduced, because of monies received by the plaintiff from sources independent from the tortfeasor’s procuration or contribution.”  Bozeman v. State, 2003-1016 (La. 7/2/04); 879 So. 2d 692, 698.  Under the rule, a defendant was left to pay for the face amount of medical bills, regardless of the substantial write-offs negotiated by a plaintiff’s insurer or Medicare.   Thus, even when a plaintiff’s insurer negotiated a lower payment to a medical provider by contract, the plaintiff was entitled to a windfall recovery above his or her true financial harm.  

Collateral Source Rule Changes

Under the Civil Justice Reform Act of 2020, a plaintiff can no longer recover the full amount stated on his or her medical bills if his or her insurer pays less than face value to the provider.  The new law provides that a plaintiff’s recovery for medical bills is “not the amount billed” but is “limited to the amount actually paid” by insurance or Medicare.  

A plaintiff will still be entitled to receive compensation for his or her costs of obtaining insurance.  The old Collateral Source Rule furthered the policy that tort wrongdoers should not be entitled to benefit from a tort victim’s insurance, for which that tort victim paid premiums.  Bozeman, 879 So. 2d at 698, 703-04.  The new law does not abandon this policy.  Moving forward under the Justice Reform Act of 2020, a plaintiff will be entitled to receive 40% of the difference between the amount billed and the amount actually paid by his or her insurer, in consideration for the cost of procuring the insurance, unless the defendant proves that recovery of the cost of procurement would make the award unreasonable.  This rule should continue to encourage people to obtain insurance and not result in an unearned benefit for tortfeasors. 

Other changes under the Civil Justice Reform Act of 2020

The new law also lowers from $50,000 to $10,000 the minimum amount of damages at issue necessary to qualify for a jury trial.  Further, a defendant in a car accident lawsuit will now be able to offer evidence that the plaintiff was not wearing a seatbelt, thereby contributing to his or her injuries, and parties will be limited in their ability to discuss each other’s insurance coverage.

The example of Paul and Don

The changes under the Civil Justice Reform Act of 2020 can be easily understood by an example.  Driver Don negligently hit second driver Paul when Paul was stopped at a red light.  Paul was not wearing his seatbelt, and he sustained minor injuries.  Paul visited his doctor who ran tests and prescribed physical therapy and billed Paul $10,000.  Paul’s insurer (or Medicare) paid the doctor, pursuant to the health insurance plan’s contract with the provider, 10% of the billed amount.  Paul then sued Don.  Under the old Collateral Source Rule, even though Paul’s insurer had only paid $1,000 to extinguish Paul’s medical bills, Paul was entitled to receive the originally billed amount of $10,000 in judgment from Don.  As a result, Don, and Paul could rarely reach a settlement – Paul maintained he was entitled to the full medical expense billed, but Don countered that Paul was only entitled to $1,000 since that was the amount actually paid.  Further, Don could not demand a jury since the total claim did not amount to $50,000, nor could he present evidence that Paul was not wearing his seatbelt.    

Under the Civil Justice Reform Act of 2020, Paul is entitled to the $1,000 that his insurer paid to cover the medical costs, not the $10,000 presented on the face of his bills.  As consideration for his procurement of insurance, Paul can also recover 40% of the $9000 difference between the amount billed and the amount actually paid.  Thus, Paul’s total recovery under the new statute would be $4,600, instead of $10,000.  Additionally, Don could demand a jury trial if Paul’s claim totaled $10,000 and could present evidence that Paul was not wearing his seatbelt.  From the start, this brings the parties much closer together in negotiation and hopefully obviates the filing of a lawsuit.  These changes make settlement more feasible.  

Main Takeaway

What effect will this have?

The new law encourages settlement and prevents windfall recoveries for Louisiana plaintiffs in suits involving medical bills.  The Civil Justice Reform Act of 2020 goes into effect on January 1, 2021, and will only be applied prospectively. It does not apply to any cause of action arising before January 1, 2021.  Over time, this new legislation will cut-down on inflated and disproportionate recoveries, encourage earlier settlement without litigation, and eventually lead to lower insurance premiums for all Louisiana insureds. 

For More Information

Please contact us if you would like more information about this topic, or if we can be of service in matters raising similar issues.  For additional information, please contact:

Brent Talbot | Practice Area Chair
talbot@chaffe.com

Jesse Frank | Associate
jesse.frank@chaffe.com