In Texas, it has become increasingly common for personal injury plaintiffs’ firms to negotiate rates and issue letters of protection to medical providers for their clients. This may be due in part to the fact around 18.4% of Texans are uninsured – double the national average.1 Regardless of the reason, it is increasingly important for defense attorneys to be able to discover those agreements and the rates the plaintiff will actually pay and incur.
Background
In 2018, the Court first addressed the discoverability of negotiated rates a medical provider charges to patients’ insurers or public payors in a medical lien case.2 There, the Court found such discovery requests were relevant to understanding the reasonableness of the “full” rates charged to uninsured individuals for the same service.3
Three years later, in 2021, the Court expanded the ruling to apply to personal injury cases.4 There, the Court remarked that it “defies logic” to suggest that negotiated rates “have nothing to do with the reasonableness of charges to the small number of patients who pay directly.”5
Several times since 2021, the Court has held up the discoverability of negotiated medical provider rates in personal injury actions.6 Several of which had substantially similar discovery requests to those in the 2018 case.7
Limitations on damages
Negotiated rates are discoverable to address the limits on damages including whether the damages are actually (1) reasonable and (2) paid and incurred.8 Moreover, medical liens are invalid to the extent they “exceed a ‘reasonable and regular rate.’”9
Reasonable and proper compensation must be neither meager nor excessive, but must be sufficient to place the plaintiff in the position in which he [or she] would have been absent the defendant’s tortious act. In this way, compensation through actual-damages awards functions as “an instrument of corrective justice, an effort to put the plaintiff in his or her rightful position.”10
Consistent with the principle that the plaintiff be placed in the situation they would have been in but for the defendant’s alleged tortious conduct is the idea that the limitation is that a plaintiff cannot recover more than they paid or incurred.11
So, if a provider bills an insured patient at charge master rates but, pursuant to its contract with the patient’s insurer, is only entitled to receive payment at a reduced, negotiated rate, then the insured can only recover the reduced amount from the tortfeasor because that’s the amount “actually paid or incurred.”12
While the Court recognizes that these limitations may sometimes leave a plaintiff “undercompensated,” it protects defendants from being responsible for unreasonable or excessive losses. For example, a plaintiff needing reconstructive plastic surgery who elects to go to a top-dollar, world-renowned plastic surgeon that caters to celebrities cannot recover any more than what a local competent plastic surgeon would charge for the same procedure.
Discovering the rates attorney referred medical providers charge
While one difficulty in discovering rates from medical providers is the fact that they typically are not parties to the lawsuit, Texas law expressly authorizes the discovery of relevant evidence from nonparties.13 This is because cases are to be decided on “what the facts reveal, not by what facts are concealed.”14 Nevertheless, discovery requests to non-parties like medical providers are subject to “a proportionality standard that requires a case-by-case balancing of jurisprudential considerations,” including whether the request is (1) relevant and (2) narrowly tailored.15
Relevancy of the request
Under the reasonableness standard, any evidence that tends to make the existence of a consequential fact more or less probable than it would be in the absence of the evidence is relevant to the case.16 Parties are permitted to “obtain discovery regarding any matter that is not privileged and is relevant to the subject matter of the pending action, whether it relates to the claim or defense of the party seeking discovery or the claim or defense of any other party.”17
The Texas Supreme Court has found that discovery of negotiated medical rates goes “to the very heart of a party’s case” and can prevent it from “developing essential elements of its claim or defense.”18 Accordingly, a trial court abuses its discretion when it denies a discovery request on improper grounds and “prevents a party from developing a defense that goes to the heart of its case.”19
Tailoring the request
Generally, the permissible scope of discovery is broad, but “trial courts must consider proportionality and weigh a party’s right to discovery against the needs of the case.”20A relevant request that is properly and narrowly tailored will more than likely survive challenges to proportionality, overbreadth, and undue burden.
Four factors should be considered when determining the proportionality analysis for negotiated medical rates, including:
- Whether letters of protection (“LOP”) have been issued;
- The value of the past claimed medical expenses;
- The availability of pricing data from alternative sources; and
- The court’s ruling on Section 18.001 counteraffidavits.21
Notably, whether or not the entity being subpoenaed has received a letter of protection can be dispositive22 in the analysis because the nonparty has a financial interest in the outcome.23 Accordingly, medical providers who have received a LOP forfeit a degree of the protection afforded under the rules to disinterested third parties.24
Examples of narrowly tailored requests for negotiated medical provider rates include:
- a request for the production of contracts regarding the rates private insurers pay for the services provided to the plaintiff;
- interrogatories requesting the hospital state its Medicare and Medicaid reimbursement rates for the services provided to the plaintiff; and
- a request for the production of the annual cost report provided to Medicare in five particular years.25
Conclusion
In sum, the Texas Supreme Court has recognized the increasing need for defendants to be able to discover medical rates from providers because such facts go to the heart of a defendant’s defense by enabling the defendant to determine whether the rates demanded are actually reasonable and paid and incurred.
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[1] Spencer Grubbs and Bruce Wright, Uninsured Texans: Many More Lose Coverage in Pandemic, Fiscal Notes, (Oct. 2020), https://comptroller.texas.gov/economy/fiscal-notes/2020/oct/uninsured.php.
[2] In re N. Cypress Med. Ctr. Operating Co., 559 S.W.3d 128, 129 (Tex. 2018) (orig. proceeding).
[3] Id.
[4] See In re K & L Auto Crushers, LLC, 627 S.W.3d 239 (Tex. 2021), reh’g denied (Sept. 3, 2021).
[5] Id. at 249.
[6] See In re ExxonMobil Corp., 635 S.W.3d 631 (Tex. 2021); In re Cent. Oregon Truck Co., Inc., 644 S.W.3d 668 (Tex. 2022); In re Liberty Cnty. Mut. Ins. Co., No. 22-0321, 2023 WL 7930099 (Tex. Nov. 17, 2023).
[7] See In re N. Cypress Med. Ctr. Operating Co., 559 S.W.3d at 129; In re K & L Auto Crushers, LLC, 627 S.W.3d at 253; In re ExxonMobil Corp., 635 S.W.3d at 635; In re Cent. Oregon Truck Co., Inc., 644 S.W.3d at 669–70.
[8] In re K & L Auto Crushers, LLC, 627 S.W.3d at 249.
[9] Id.; See Tex. Prop. Code § 55.004(d)(1).
[10] In re Cent. Oregon Truck Co., Inc., 644 S.W.3d at 670(quoting J&D Towing, LLC v. Am. Alt. Ins. Corp., 478 S.W.3d 649, 655 (Tex. 2016)).
[11] In re K & L Auto Crushers, LLC, 627 S.W.3d at 249.
[12] Id.
[13] ExxonMobil Corp., 635 S.W.3d at 635; See Tex. R. Civ. P. § 205.3(c).
[14] K & L Auto Crushers, 627 S.W.3d at 248 (quoting Crosstex Energy Servs., L.P. v. Pro Plus, Inc., 430 S.W.3d 384, 394 (Tex. 2014)).
[15] In re Cent. Oregon Truck Co., Inc., 644 S.W.3d at 669.
[16] Tex. R. Evid. § 401.
[17] Tex. R. Civ. P. 192.3(a).
[18] In re K & L Auto Crushers, LLC, 627 S.W.3d at 256 (internal citations omitted).
[19] In re Liberty Cnty. Mut. Ins. Co., No. 22-0321, 2023 WL 7930099 *3 (Tex. Nov. 17, 2023).
[20] Id. at *3.
[21] In re K & L Auto Crushers, LLC, 627 S.W.3d at 249, 262.
[22] Id. at 249, 254.
[23] In re ExxonMobil Corp., 635 S.W.3d at 635.
[24] In re K & L Auto Crushers, LLC, 627 S.W.3d at 249, 254.
[25] Id.
