Further Limiting the Collateral Source Rule in Delaware

Defense Digest, Vol. 23, No. 3, September 2017

By Bradley J. Goewert, Esq.*

In the September 2015 issue of Defense Digest, Armand Della Porta, Esq., a shareholder in our Wilmington, Delaware office, wrote about the decision in Stayton v. Del. Health Corp., 117 A.3d 521 (Del. 2015), in which the Delaware Supreme Court held that the collateral source rule did not allow the entire amount of a medical bill to be submitted to the jury in a personal injury action when the plaintiff’s medical bill was paid by Medicare. This rationale has now been extended to Medicare Advantage (Part C) and Medicaid.

Before the Stayton decision, plaintiffs in a personal injury action were allowed to recover the amount of charged medical services reflected on their bill before any write-downs or insurance payments. Often medical bills are reduced to the negotiated rates of various private insurers, as well as Medicare and Medicaid. The general rule in Delaware is that write-downs by medical providers and payments from insurance companies are not known to the jury; only the amount billed. This is called the collateral source rule.

However, in Stayton, the Delaware Supreme Court reviewed the rationale behind the collateral source rule and held that it did not apply to public sources of payment, including Medicare. It was the court’s rationale that the collateral source payment of Medicare is not a bargained-for benefit of the plaintiff. Therefore, the plaintiff should not receive a benefit. In Medicare, the plaintiff receives the benefit of a bargain that is made by the buying power of all taxpayers. It would be an improper windfall if a plaintiff were allowed to recover an amount that was never paid and for which the plaintiff did not bargain.

The court has since extended the decision of Stayton to apply to Medicare Advantage (Part C) and Medicaid. In Honey v. Bayhealth, 2015 Del. Super. (Del.Super. July 28, 2105) I, along with Lorenza Wolhar, Esq., of our Wilmington office, successfully argued that the Stayton rationale applies to health care plans under Medicare Advantage, or Part C. Under Medicare Advantage, private insurance companies can provide Medicare benefits to individuals with the same coverage rules as Medicare and payment for the coverage coming from the federal government. In Honey, the plaintiff argued that the rationale in Stayton should not apply because the insurer was private, not the government. With this argument, the plaintiff argued that she should be entitled to recover the entire amount of her medical bills, not just the amount paid by the insurer.

The Superior Court reviewed Medicare Advantage and found it more akin to Medicare then a private insurer. Insurers providing coverage under Medicare Advantage are “[f]ederal contractors providing federal benefits, established by the federal government, to federal constituents.” The rationale of Stayton was further discussed, and it was explained that a windfall to the plaintiff would be improper if she was allowed to recover the entire amount of a medical bill when she did not bargain for the insurance coverage. Accordingly, in cases of Medicare Advantage, only the amount paid by the insurer is recoverable.

The Delaware Supreme Court further extended the limit of the collateral source rule in cases of Medicaid in the decision of Smith v. Mahoney, 150 A.3d 1200 (Del. 2016). The court used the Stayton rationale to limit the recovery of medical expenses to the actual amount paid by Medicaid. However, the court also held that Medicaid could not be used to reduce future medical expenses because Medicaid is a voluntary program and beneficiaries can move out of the program.

There is no requirement that a medical provider accept Medicaid, and there is no requirement that if they do accept Medicaid that they actually submit the bills to Medicaid for payment. Plaintiffs can be treated by medical providers who do not accept Medicaid or can fail to submit their medical bills to Medicaid for payment. Under both scenarios, no medical payments are paid by Medicaid and no write-downs are being made by the medical providers, so plaintiffs can recover the entirety of the medical bill.

*Brad, a shareholder in our Wilmington, Delaware office, is the supervising attorney for health care liability in our Delaware office. He can be reached at 302.552.4328 or bjgoewert@mdwcg.com.

_{Defense Digest, Vol. 23, No. 3, September 2017. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2017 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.}