Reasonable Medical Expenses – Billed Amount or Negotiated Amount?

Understanding medical billing and medical expenses can be quite difficult in today’s healthcare system, and courts across the country have been grappling with how to determine the reasonable amount of medical expenses in court cases. In a recent Tennessee case, the Court of Appeals declined to extend a Tennessee Supreme Court decision which held that reasonable medical expenses were those that the medical provider actually accepted as payment from an insurance company, as the Supreme Court decision was a hospital lien case and the Court of Appeals was reviewing a personal injury matter.


The underlying facts in Dedmon v. Steelman, No. W2015-01462-COA-R9-CV (Tenn. Ct. App. June 2, 2016) were that plaintiff was seeking recovery for injuries sustained in a car accident. Plaintiff claimed medical expenses of $52,482.87, and plaintiff provided medical bills and the deposition of a treating physician who testified that the expenses were “appropriate, reasonable, and necessary[.]”


After this suit was filed, the Tennessee Supreme Court issued a decision in a case about hospital liens, West v. Shelby County Healthcare Corp., 459 S.W.3d 33 (Tenn. 2014). Tennessee law gives hospitals a lien “for all reasonable and necessary charges for hospital care, treatment and maintenance of ill or injured persons[.]” The West court tackled the issue of what exactly constituted reasonable charges, in light of the fact that the amount a patient is billed and the amount an insurance company actually pays is often vastly different. The Court in West eventually determined that, “with regard to an insurance company’s customers,” reasonable expenses were “the charges agreed to by the insurance company and the hospital,” not the billed amount. The Court stated:

The hospital’s non-discounted charges reflected in the amount of the liens it filed against the plaintiffs should not be considered reasonable charges for the purpose of [the Hospital Lien Act] for two reasons. First, the amount of these charges is unreasonable because it does not ‘reflect what is [actually] being paid in the market place.’ …[A] more realistic standard is what insurers actually pay and what the hospitals [are] willing to accept.’ …The second basis for concluding that the [hospital’s] non-discounted charges are not reasonable stems from its contracts with [the insurers]. The [hospital] furthered its own economic interest when it agreed in these contracts to discount its charges for patients insured by [the insurers]. …The [hospital’s] contract with [the insurers] defined what the reasonable charges for the medical services provided to [the plaintiffs] would be.

(Internal citations and quotations omitted).

In the instant matter, the defendant argued that the Court should apply the West rational, and that “the amounts the medical providers accepted in satisfaction of the bills should be deemed the ‘reasonable’ medical expenses.” According to defendants, this amount was $18,255.42, more than $30,000 less than the amount submitted by plaintiff. The trial court agreed with defendant, granting a motion in limine, but also granted plaintiff permission to seek an interlocutory appeal on this issue.

“In personal injury cases such as this one, a plaintiff may recover only those reasonable medical expenses that were necessary to treat the injury caused by the defendant’s negligence.” (internal citation omitted). Here, while necessity was not contested, the reasonableness of the expenses claimed by plaintiff was hotly disputed. In analyzing this issue, the court noted that other courts interpreting whether to apply West outside the hospital lien context had come to differing decisions—four trial courts had applied West to personal injury cases, four trial courts had limited West to hospital liens only, and three federal district court opinions had “interpreted West as defining the standard of reasonableness for medical expenses in personal injury litigation.” (citations omitted).

Ultimately, explaining that it was bound by existing law, the Court here agreed with plaintiff that West was at least currently confined to hospital lien cases. The Court reasoned:

The supreme court in West said ‘we must decide which version of the hospital’s costs is the reasonable cost for the purpose of Tenn. Code Ann. § 29-22-101(a).’…We reject any assertion that the supreme court meant for its holding in West, standing alone, to control all determinations of reasonableness with regard to medical expenses under Tennessee law. In fact, the supreme court cautioned that ‘nothing in this opinion should be construed to apply to hospital liens filed against patients who are TennCare enrollees.’ If the court did not intend for its opinion to apply to hospital liens in all circumstances, surely the court did not intend for its opinion to be binding as to all determinations of reasonable medical expenses under Tennessee law.

The Court further noted:

Defendants’ proposed expansion of West would create a new system that allows the amount accepted by medical providers in satisfaction of the bills to be deemed reasonable as a matter of law. For example, according to Defendants, plaintiff should not be allowed to introduce proof of any medical expenses in excess of the amount accepted as payment in full by her medical providers. Thus, Defendants’ proposal would require exclusion of a physician’s testimony that the amount of charges billed represents a reasonable value. Such an approach is incompatible with the standards set forth in existing Tennessee case law.

The Court did not go so far as to say that defendant could not present evidence regarding the amount actually paid for medical expenses. The Court concluded that, under existing law, “a plaintiff may present the testimony of a physician who testifies that the amount of medical expenses billed or charged to a plaintiff was reasonable,” and that “defendants are permitted to offer proof contradicting the reasonableness of the medical expenses.” The Court indicated that defendants could submit evidence that the amount that actually paid was less than the amount charged, so long as they did not violate the collateral source rule.

In closing, the Court stated its “hope that the Tennessee Supreme Court will review this case[.]” Judge Riley also filed a concurring opinion in this case, noting that because of requirement to follow existing case law he agreed with the majority opinion, but stating that he “believe[s] the time has come to re-evaluate the method of calculating reasonable medical expenses in personal injury litigation in light of modern billing practices and in accordance with the dictates of West.”

As documented by the Court of Appeals, there is confusion around the issue of “reasonable” medical expenses in Tennessee today, and this case is likely to be taken up by the Supreme Court. Should the Supreme Court take the case, its decision could have a huge impact on personal injury plaintiffs. Tennessee has already limited noneconomic damages for personal injury plaintiffs, and this case seems to indicate a likelihood that medical expenses may at some point in the future be judged not based on what is billed, but on what the insurance company and hospital have agreed to. This is yet another step towards failing to properly compensate injured plaintiffs and creates a host of issues that I fear our judges have not even contemplated.   Be assured that the Tennessee Supreme Court will be educated on this issues.


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