Thomas J. Dawson III, Esq., MPH, MA
TD&P Consulting, Inc.
January 16, 2017
The “reasonable value of medical expenses” consistently plays a major role in the litigation of personal injury matters, with plaintiffs seeking to recover the maximum amount based on their asserted injuries and defendants seeking to reduce potential damages. A recent decision in Tennessee brought attention to and exposed, in states where the collateral source rule remains firm, how a defendant may question the value of medical expenses claimed by plaintiffs and their presumptive reasonableness or reasonable value.
In November 2017, the Tennessee Supreme Court addressed the evolving issue of what evidence may be presented to a jury to establish the reasonable value of medical expenses, and how the relevant law has been forced to adapt its standards to the modern complexities of medical billing and expense, without losing the reliance of long-time principles of the collateral source rule. In Dedmon v. Stellman, the Tennessee Supreme Court slightly conceded to the increased pressure of defendants looking to limit the amount of damages that may be presented to a jury, but it overall upheld the effect of the collateral source rule on presentation of the reasonable value of medical expenses. In coming to its decision, the Court balanced the interplay of medical expenses, medical insurance, and billing rates on the one hand, with the evidentiary boundaries created by the collateral source rule on the other hand.
In reversing the judgment of the court of appeals, the Court in Dedmon held that plaintiffs in personal injury cases could continue to submit evidence of their full, undiscounted medical bills as proof of their reasonable medical expenses. The court further held that defendants would, as before, be disallowed from submitting evidence of the discounted rates created as a result of insurance, with the new caveat that defendant could submit evidence to counter plaintiff’s purported damages, so long as they were able to do so without reference to insurance or any other issue in violation of the collateral source rule.
 2017 Tenn. LEXIS 720, No. W2015-01462-SC-R11-CV (Tenn. November 17, 2017).
 The Dedmon decision does not apply to medical malpractice actions, which are governed by Tenn. Code Ann. § 29-26-119, the Tennessee Medical Malpractice Act (TMMA). That law limits a medical malpractice plaintiff to recovering “actual economic losses,” including the “cost of reasonable and necessary medical care . . . but only to the extent that such cots are not paid or payable and such losses are not replaced, or indemnified in whole or in part, by insurance provided by an employer either governmental or private . . . .” Tennessee courts have held that plaintiffs under the TMMA may recover for medical expenses paid by their insurer where insurer retains a subrogation right. The reasoning is that the plaintiff’s losses were not “replaced or indemnified” where the insurer still may assert a subrogation lien. But, in such cases, plaintiffs are limited to recovering the amounts actually paid by the insurer in full satisfaction of their medical bills, and may not recover the full “billed” charge. Nalawagan v. Dang, No. 06-2745-STA-dkv, 2010 U.S. Dist. LEXIS 114576, *5-*6 (W.D. Tenn. Oct. 27, 2010).
By way of background, in February 2010, Jean Dedmon and her husband were involved in an automobile accident. They filed a personal injury lawsuit, “alleging that his negligence caused Mrs. Dedmon to suffer severe and permanent injuries and to incur past and future medical expenses.” Mrs. Dedmon attached medical bills to the complaint totaling $52,482.87. Mrs. Dedmon’s treating physician testified that all of Mrs. Dedmon’s medical bills were “reasonable and necessary to a reasonable degree of medical certainty.”
In an effort to counter the plaintiff’s statement of medical expenses, the defendants filed a motion in limine to exclude this evidence claiming that the medical charges were unreasonable. Citing West v. Shelby County Healthcare Corp,thedefendants argued that evidence of Mrs. Dedmon’s undiscounted medical bills must be excluded because the amount is unreasonable as a matter of law – i.e., “reasonable medical expenses are defined as that which the medical provider accepts from medical insurance, as a matter of law.” Based on this logic, defendants argued that Mrs. Dedmon should not be permitted to recover greater than what her medical providers accepted as full payment from her insurers — $18,255.42.
The plaintiffs opposed the defendants’ motion, asserting that the West decision was limited to the Tennessee Hospital Lien Act (THLA) and did not extend to the question of “reasonableness of medical expenses in personal injury cases.” The plaintiffs also argued that existing Tennessee law permitted them to use expert testimony to prove the reasonableness of their medical expenses. They claimed that defendant’s broad interpretation of West violates existing statutory and case law, “the Collateral Source Rule, public policy, and would lead to widely disparate, unfair results.”
 As a brief summary, the Tennessee Supreme Court’s decision in West considered the appropriate measure of “reasonable medical expenses” in the context of the Hospital Lien Act (“HLA”), codified at Tenn. Code Ann. § 29-22-101(a). Under the HLA, medical providers are entitled to recover, through a lien, for the “reasonable medical expenses” resulting from their treatment of a patient. In West, the Court considered the scope of the “reasonable expenses” that can be recovered by medical providers under this Act. The Supreme Court looked past the often-illusory “unadjusted charges” issued by modern healthcare companies and found that “with regard to an insurance company’s customers, ‘reasonable charges’ are the charges agreed to by the insurance company and the hospital. [The hospital’s] contract with [the insurer] defined what the reasonable charges for the medical services provided to [its patients] would be.” West, 459 S.W.3d at 46. With this in mind, the Court limited the amount a hospital could recover as “reasonable expenses” to the amount paid and accepted in satisfaction of a patient’s bill. The West Court further explained that the concept of “reasonable medical expenses” is “well known to the bench and bar,” applying not only in the hospital lien context, but also in medical malpractice actions, workers’ compensation actions, and personal injury actions.
 Deadmon, 2016 Tenn. App. LEXIS 386 at *4, 2016 WL 3219070, No. W2015-01462-COA-R9-CV (Tenn. Ct. App. 2016)
 Id. at *5.
In March 2015, the trial court conducted a hearing on the Defendants’ motion in limine. The trial court agreed with the Defendants that, based on West, Mrs. Dedmon’s full, undiscounted medical bills are irrelevant to the question of her reasonable medical expenses and that the discounted amounts paid by Mrs. Dedmon’s insurer constituted her reasonable medical expenses as a matter of law. Accordingly, it granted the motion in limine and excluded evidence of Mrs. Dedmon’s full, undiscounted medical bills. The trial court commented that it interpreted West as having advanced a policy of not allowing “the subterfuge that the medical community uses with regard to insurance and expenses to sully the court system.” The trial court added that it could not “imagine that [this Court] would use any other logic in this situation than they used in [the hospital lien statute] situation.”
On review, the Tennessee Court of Appeals reversed the trial court’s order on the motion in limine. However, the Court charted a middle ground between the two sides, ultimately adopting a “hybrid approach” that allowed Plaintiffs to present evidence of the full, “unadjusted” charges issued by healthcare providers, but also allowed Defendants to present evidence of the lower, “adjusted” charges that were paid to refute the excess charges claimed by Plaintiffs.
In considering the issue, the Court of Appeals acknowledged that the concept of “reasonable medical expenses” has come under increased scrutiny in recent years “due to the increased involvement of government payors, the complexity of health care reimbursement provisions, financial pressures on hospitals, and the significance of medical expense recovery in personal injury litigation.” The Court further noted that the unadjusted charges issued by healthcare providers are “vastly different” than the amounts paid on behalf of patients. However, the Court concluded that under existing authority, “damages in personal injury cases are not measured by ‘fixed rules of law’ but rest largely in the discretion of the trier of fact.” The Court found that Plaintiffs are entitled to present expert testimony regarding the reasonableness of their claimed damages. Id. (citing Borner v. Autry, 284 S.W.3d 216, 218 (Tenn. 2009)). However, the Court further found that “existing law in this state also makes clear that Defendants are permitted to offer proof contradicting the reasonableness of the medical expenses.” Although Defendants were cautioned not to run afoul of the collateral source rule by indicating how a bill was paid, “allowing evidence that a medical bill was satisfied for a lower amount does not necessarily require evidence that the payment was made by a collateral source such as insurance.”
 Id. at *6.
 Id. at *7 n. 5.
 Id. at *13 (quoting Roberts v. Davis, 2001 WL 921903, at *4 (Tenn. Ct. App. Aug. 7, 2001))
 Id. at *16.
 Id. at *7 n. 6.
The Court of Appeals stated that the collateral source rule “does not address, much less bar, the admission of evidence indicating that something less than the charged amount has satisfied, or will satisfy, the amount billed.” In so holding, the Court specifically refuted the argument that the “negotiated price differential” is somehow protected by the collateral source rule. According the appellate court, plaintiffs would no longer be able to use the collateral source rule as sword and shield when explaining the amount of medical expenses to juries. Under the appellate court ruling, juries would still determine the reasonable expenses, but only after hearing both sides of the story.
The Tennessee Supreme Court took up the issue and reversed the appellate court’s “hybrid” system, holding that:
[T]he definition of “reasonable charges” under the Hospital Lien Act set forth in West v. Shelby County Healthcare Corp., 459 S.W.3d 33 (Tenn. 2014), does not apply directly to determinations of “reasonable medical expenses” in personal injury cases; the West definition of “reasonable charges” is limited in application to interpretation of the Hospital Lien Act. We also decline to alter existing law in Tennessee regarding the collateral source rule. Consequently, the Plaintiffs may submit evidence of Mrs. Dedmon’s full, undiscounted medical bills as proof of her “reasonable medical expenses,” and the Defendants are precluded from submitting evidence of discounted rates for medical services accepted by medical providers as a result of Mrs. Dedmon’s insurance. The Defendants remain free to submit any other competent evidence to rebut the Plaintiffs’ proof on the reasonableness of Mrs. Dedmon’s medical expenses, so long as the Defendants’ proof does not contravene the collateral source rule. Thus, we affirm the Court of Appeals’ decision to reverse the trial court’s grant of the Defendants’ motion in limine, but we reverse the Court of Appeals to the extent that it held that the Defendants could introduce evidence of lesser amounts accepted by Mrs. Dedmon’s medical providers in order to rebut the Plaintiffs’ proof on reasonableness.
On one hand, the Tennessee Supreme Court’s decision essentially maintains the status quo prior to the trial court’s decision to grant the motion in limine, and limits, in part, the evidence a jury can hear about medical bills to the amount of the medical bills charged by the medical care provider. The effect is the inflation of “medical bills” in personal injury cases. On the other hand, the Court did not preclude defendants from submitting evidence rebutting the plaintiff’s proof of reasonableness so long as it did not conflict with the “collateral source rule.” The Court’s decision has forced Defendants to reconsider the question of reasonableness against the backdrop of “reasonable value.”
While plaintiffs continue to benefit from the collateral source rule’s barrier for defendants introducing discounted insurance prices, defendants have been provided an opening to attacking these numbers. The “reasonable value” of medical expenses reflects the fair market value of medical goods and services in the marketplace. This necessarily entails reliance on pricing/ rates in the market that are not ‘per se’ discounted. It follows that, pricing data used to determine reasonableness in the marketplace should, at a minimum, be:
- Objective and independently verifiable,
- Based on market defined parameters, and
- Drawn from a representative sample of the market population.
In this context, the calculation of reasonable medical expenses should involve the following:
- The consideration of objective diagnostic healthcare data – i.e., Current Procedural Terminology (CPT) codes and Healthcare Common Procedure Coding System (HCPCS) codes – to identify objective and independently verifiable data.
- Framing data regarding the financing of medical expenses within market defined parameters – i.e., self-insured, public, and private payor reimbursement rates.
- Coupling market population data with market defined parameters for the financing of healthcare – i.e., deriving from a representative population the weighted average of population participation in market defined healthcare financing vehicles – to provide the reasonable value of medical expenses in the market.
 Id. at 17 (quoting Martinez v. Milburn Enters., Inc., 233 P.3d 205, 222–23 (Kan. 2010)).
 2017 Tenn. LEXIS 720 at *83-84.
 Ill. Admin. Code § 68(b)(1350.25); see also, Illinois Department of Healthcare and Family Services, available at, https://www.illinois.gov/hfs/SiteCollectionDocuments/7117PractitionerFeeSchedule.pdf.
 To calculate the weighted average, identify the numbers that are to be weighted. Identify the percentage weight of each number. Multiply each number by its percentage weight. Covert the resulting weighted percentage of each number to a decimal. Add the weighted percentages together.
|Price||Weight||Weighted Average Amount|
 See 42 U.S.C. § 1395nn(h)(3) (The term “fair market value” means the value in arms length transactions, consistent with the general market value . . .); see also 42 C.F.R. 411.351 (“‘General market value’ means . . . the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of acquisition of the asset or at the time of the service agreement. Usually, the fair market price is the price at which bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition.”).
 See Stanford University, Administrative Guide, Purchasing and Payments, available at,https://adminguide.stanford.edu/chapter-5; see also, Loyola Univ. of Chicago, Purchasing Dept., Methods to Determine Price Reasonableness, available at, http://www.luc.edu/purchasing/ price_reasonableness.shtml (“what follows is a listing of the most common methods or criteria used to determine a price fair and reasonable by price analysis . . . b. Comparable to price sold to fed. Gov’t.: . . .these are presumed to be fair and reasonable . . .c. CATALOG OR ESTABLISHED PRICE LIST: . . . the seller has published or established price list or catalog, available to the general public, which sets for the price of a commercial item, this fact can be used to find the price fair and reasonable. The catalog should be current . . .d. MARKET PRICES: Where an item has an established market price, verification of an equal or low price also establishes the price to be fair and reasonable.”); FAR 15.404-1(c)(1), FAR 15.404-1(b)(2), FAR 31.201-3, DAR 215.4.
The federal courts have also followed this line of reasoning, with courts recognizing that the billed rate (or advertised charge rate) does not reflect the actual amount the healthcare provider expects to be paid. In United States v. Berkeley Heartlab, Inc., the court acknowledged that “physicians set their charges higher than the actual payment they expect to receive . . .” The Court found that the evidence in this case suggested that physicians set their rates 200% to 500% higher due to annual changes in the Medicare Physician Fee Schedule (MPFS) rates (with the knowledge that Medicare is not allowed to pay above the MPFS). Under this analysis, the federal district court rejected the argument that a physician’s charged rate reflects the amount required for payment. In doing so, the court decided that an analysis relying on medical bills does not accurately capture the reasonable value of medical services. Rather, reasonable value reflects the average payment providers in the marketplace expect to receive. The charged or billed amount is not the expected payment. This “reasonable value,” therefore, reflects the amount that the provider expects to receive for goods and services.
A lawyer attempting this approach would have to be careful to present these alternative measures of “reasonable value” in such a way as to avoid mention of insurance. Thus, an attorney probably would not be permitted to suggest that the plaintiff’s medical providers billed at a higher rate because it was unlikely that the insurance company would reimburse them at anywhere near that amount. Any discussion of insurance, even at a high level of background, would run a risk of being excluded under the collateral source rule.
Tenn. Code Ann. creates a further hurdle at § 24-5-113(b)(1), which creates a presumption in certain cases that medical bills are reasonable. Tenn. Code Ann. § 24-5-113(b)(1) provides that, [I[n any civil action for personal injury brought by an injured party against the person or persons alleged to be responsible for causing the injury, if an itemization of or copies of the medical, hospital[,] or doctor bills which were paid or incurred because of such personal injury are served upon the other parties at least ninety (90) days prior to the date set for trial, there shall be a rebuttable presumption that such medical, hospital[,] or doctor bills are reasonable.
This presumption of is rebuttable, however. Subsection (b)(2) provides that “[a]ny party desiring to offer evidence at trial to rebut the presumption shall serve upon the other parties, at least forty-five (45) days prior to the date set for trial, a statement of that party’s intention to rebut the presumption. Such statement shall specify which bill or bills the party believes to be unreasonable.”
In conclusion, while the Tennessee Supreme Court generally maintained the status quo, it did provide a small opening for defendants to counter plaintiffs proposed medical expenses with calculations of reasonable value. The defendant may still contest the reasonableness of the billed charge by proposing an alternative measure of calculating a reasonable charge. However, the defendant must be careful not to suggest the existence of insurance or to imply that the insurer did not actually pay the full bill.
 U.S. Dist. LEXIS 107481 (D.S.C. July 11, 2017).
 Id. at 14.
 Dedmon v. Steelman, 2017 Tenn. LEXIS 720, *18