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"Paid and Incurred" Ruling by the Texas Supreme Court…

“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.