Medical Discounts and the Collateral Source Rule

In the United States, an ever increasing number of people are covered by various forms of private and public medical insurance that provides medical services at negotiated or group rates below providers' so-called 'prevailing' or 'usual and customary' rates. See William R. Jones, Jr., Managed Care and the Tort System: Are We Paying Unnecessary Billions? 63 Def. Couns. J. 74, 75 (1996) ('[R]esearch discloses that, depending on geographical area, as many as 80 percent of providers are estimated to be rendering health care under managed care plans of one type or another' and '[a]t least half of all health care in the United States now is provided under some type of managed care plan.'). With so many people covered by managed care plans, only a small number of people are actually paying what medical care providers claim as their standard rates. Insurers are paying only the discounted rates negotiated under their contracts, with health care providers basically having to forgive the remainder sought. Thus, the amount healthcare providers state on their invoices are no longer the prevailing, usual, typical, normal, customary or most common rates. Such rates are, in fact, unusual and almost never actually paid. Rather, the lower contractual rates are more commonly paid. See Chris Middleton, Pac. Research Inst., Hospitals Are Just Playing the Medicare Game, Vol. 1 no. 12 Health Pol'y Perscriptions, Dec. 2002, available at www.pacificresearch.org/pub/hpp/2002/hpp_02-12.html (last viewed Mar. 7, 2007) ('Akin to the manufacturer's suggested retail price on automobiles, hospital retail charges are inflated prices that don't reflect what they are actually paid. In fact, the differential is even greater for hospitals than for automobiles. Medicare and private insurers pay only a fraction of hospital charges.'); Jones, supra, at 75 ('The difference between the managed care fixed rate and the provider's billed charges is often as much as 600 to 800 percent.').

Although health care providers may charge their purported 'prevailing' or 'usual and customary' fees to a minority of patients who, for whatever reason, fail to qualify for the more favorable negotiated rates available to most other patients, it is difficult to see why that circumstance makes these charges more reasonable than the lower, more common negotiated rates. For this reason, allowing a plaintiff in a tort action to recover medical damages in any amount beyond what was actually paid for the plaintiff's medical care arguably results in impermissible overcompensation that is at odds with the fundamental purpose of the tort system to make the plaintiff whole. That fundamental purpose is not served by awarding the plaintiff windfall damages that more then compensates for the harm actually caused. This, however, is what is happening across the country.