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"Health Plan Contract Discount: Plaintiff's Benefit or Defendant's Windfall?"

MTLA Magazine
August 2004

Article Author: Peter W. Riley

Author:  Peter W. Riley

MTLA Magazine, Summer 2004


The Scene: The deposition of plaintiff’s treating doctor

The Players: Yours truly and an experienced defense attorney

The Script:

Riley: At this time we would offer Plaintiff’s Exhibit 27, the itemized medical expenses.

Defense Counsel: I will stipulate that the amount paid by Medicare is reasonable.

Riley: Will you stipulate that these billings are reasonable in amount for the services rendered?

Defense Counsel: Yes, but you only get to collect the amount paid by Medicare.

Riley: What’s your authority for that counsel?

Defense Counsel: "Ask anybody who has tried a case with me in the last ten years."

The case proceeded to trial with a substantial plaintiff’s verdict. True to form, defense counsel moved the court pursuant to Minnesota Statute §548.36, to deduct from the judgment the discounts that Medicare and an HMO had taken, and thus to allow plaintiff to have judgment only for the amount Medicare paid, not the reasonable amount of the bills. In so doing, the defendant claimed to be entitled to the "discount" obtained by Medicare and the HMO as part of their contracts.

Ultimately, the trial court judge disagreed with defendant, and denied their motion for a credit for the health plan and Medicare discounts. Subsequently, a number of attorneys have asked for our brief on this issue, and thus I present this article to set forth the authorities which clearly demonstrate that defendant is not entitled to the benefit of the HMO or Medicare discounts. 1) Under Minnesota law, a defendant is liable for the full reasonable value of medical care and treatment.

Minnesota law has always held that a wrongdoer is liable for the reasonable value of medical care and treatment required by the plaintiff for the injuries he or she sustained as a result of defendant’s wrongful conduct. Goin v. Premo, 196 Minn. 74, 264 N.W. 219 (1935), Wells v. Minneapolis Baseball and A. Association, 122 N.W. 2d 327, 142 N.W. 706 (1913). The plaintiff is entitled to recover the reasonable value of the medical services even if the physician or a member of the claimant’s family provides the services without expecting payment (Wells, supra; Hueper v. Goodrich, 314 N.W.2d 828, 831 (Minn. 1982)).

Given the above clear law, I have not encountered any assertions by defense counsel that plaintiff’s claim is limited by law to the amounts paid by HMOs or Medicare. Rather, defendants assert a claim for offset pursuant to Minnesota Statute §548.36. However, a reading of that statute clearly establishes that defendant is not entitled to such a reduction in the verdict. 2) Defendant is not entitled to any offset for discounts taken by HMOs or Medicare where these entities have asserted a subrogation interest.

Minnesota Statute §548.36 defines collateral sources as "payments relating to the injury or disability in question made to the plaintiff, or on plaintiff’s behalf up to the date of verdict."

The impact of these payments upon the verdict is specified by subdivisions 2 and 3 of §548.36. Subdivision 2 establishes the first task to be performed by the court in determining whether the defendant is entitled to any deduction pursuant to the statute is that the court:

"shall determine:

1) Amounts of collateral sources that have been paid for the benefit of the plaintiff or are otherwise available to the plaintiff as a result of losses except those for which a subrogation right has been asserted." (Emphasis supplied.)

In cases where Medicare or an HMO has made payment and asserted a subrogation claim, the clear language of the statute establishes that there is no deduction from the verdict where a subrogation interest has been asserted. Note further that the statute requires only the assertion of the subrogation right – some defense counsel seek to have the court make an inquiry into the validity of the assertion of that right, but nothing in the statute permits the court to do so, and further, since the HMO or other third-party payer is not a party to the action, it would be inherently unfair to make a determination that no such subrogation interest were owed where the third-party carrier was not a party and thus would not be bound by the principles of collateral estoppel.

Accordingly, in any case where the third-party payer has asserted the subrogation claim, the court’s inquiry is at an end and there is no deduction at all, and no credit for HMO or Medicare bill discounts.

Defense counsel frequently attempt to circumvent the clear language of the statute by arguing that, since the purpose of the statute was to avoid a double recovery, the court should expand the plain language of the statute beyond the word "paid to" in essence read "paid or written off by the healthcare provider". Unfortunately for the defendants, nothing in the statute so states. Given that Minnesota Statute §548.36 is a statute in derogation of the common law (which provided for no credit to the defendant for any amounts paid by third-party payers irrespective of subrogation interests), it is to be strictly construed. As the court in Shaw Acquisition Company vs. Bank of Elk River, 638 N.W.2d 873 (Minn. 2002) stated: "If a statute abrogates the common law, the abrogation must be by express wording or necessary implication." Citing Ly vs. Nystrom, 615 N.W.2d 302, 314 (Minn. 2000).

Furthermore, while Minnesota courts have noted that a purpose of Minnesota Statute §548.36 is to prevent double recoveries by the plaintiff, the statute clearly does not prohibit double recoveries in all cases. (See Imlay vs. City of Lake Crystal, 453 N.W.2d 326, 331 (Minn. 1990). Section 548.36 abrogates a plaintiff’s common law right to be overcompensated "in many circumstances".) Some examples of an allowed double recovery under the statute include payments based on Social Security, life insurance and pensions. (Minnesota Statute §548.36(1)(2).) In addition, plaintiff’s double recovery by virtue of acquiring a workers’ compensation subrogation interest at a reduced or discounted rate is not a double recovery precluded by the statute. (Buck v. Schneider, 413 N.W.2d 569, 572 (Minn. App. 1987).)

Minnesota courts are clear that when payments are not subject to the statutory deduction, the common law collateral source rule still applies. See, for example, Duluth Steam Coop Assn. vs. Ringsred, 519 N.W.2d 215, 217 (Minn. App. 1994) (holding that payments for property damage are not subject to statutory deduction but remain subject to common law rule).

Minnesota courts have long recognized that when a plaintiff has paid for a benefit such as insurance, he or she should be reimbursed for that payment and the wrongdoer should not receive a windfall. Hueper vs. Goodrich, 314 N.W.2d 828, 830 (Minn. 1984). The Minnesota Supreme Court has held that if there is to be a windfall between an injured person and an insurer, the windfall is to benefit the injured person. See Wallace vs. Tri-State Insurance Company, 302 N.W.2d 337 (Minn. 1980). Indeed, in Stout vs. Amco Insurance Company, 645 N.W.2d 108 (Minn. 2002), the court specifically held that no-fault insurers are not entitled to credit for any discount or write-off taken by a healthcare provider; rather, the plaintiff is entitled to recover the full amount of the billings regardless of any such discounts or write-offs.

In the recent Hennepin County District Court case of Berman vs. Center for Diagnostic Imaging (Hennepin County District Court, Case No. MP03-000366), Judge Robert Lynn denied the defendant’s request for collateral source deduction for amounts written off by medical providers pursuant to their Medicare and HMO contracts. Noting that the language of the statute defines a collateral source as a payment made, Judge Lynn stated: "The court notes that this gives a $7,085.76 windfall to the plaintiff while punishing the defendant but the court is constrained by the plain language of the statute. A fairer rule may be to split this written off amount between plaintiff and defendant but if the legislature wanted such a result, they would have written it into the statute. Additionally, although this seems to go against the primary purpose of a collateral source statute, the statute does not prohibit double recoveries in all instances." Similarly, in Lidberg vs. Paone, Anoka County District Court File No. C7-02-3417, the Honorable Ellen Maas denied defendant’s request for offset of amounts of bills discounted by a health insurer. In so holding the court stated:

"Allowing a tortfeasor to benefit from lower prices contracted by an injured’s insurer rather than obligating the tortfeasor to pay the higher original price if they initially had taken responsibility for the expenses contradicts the underlying principles of recovery and the collateral source rule. See e.g., LeBlanc vs. Acadian Ambulance Service, Inc., 746 So.2d 665 (La. App., 3 rd Circuit 1999) (rehearing denied December 8, 1999). This court is not persuaded that defendant is entitled to a reduction of judgment due to the provider discounts enjoyed exclusively because of plaintiff’s diligence in selecting and maintaining an insurance policy which negotiated discounts on his behalf. " (Emphasis Added )

Finally, counsel should always keep in mind that, as to any collateral source offset, the plaintiff is entitled to reduce that offset by the amount of premiums paid for the insurance benefit which generated the offset in the two years prior to the occurrence that gave rise to the claim.


Despite the plain and simple language of Minnesota Statute §548.36, defense counsel seem increasingly inclined to assert a right to set-offs to which the defendant is not entitled. Given that it was the plaintiff’s prudence in securing health insurance or in paying for Medicare premiums that produced the discount in the first place, there is no reason in either law or equity why a defendant should obtain this credit. District court judges faced with this issue should be given the clear language of the statute so that a defendant’s attempt to obtain the benefit of the bargain struck by plaintiff’s insurer is rejected.