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Today’s case is about the clash between these two basic rules.  Before we get to the rules, we look at how we get there.  A standard defense discovery request in any personal injury litigation is:  how much are your medical bills?  This is routinely followed by:  do you have any medical liens, and if so, how much?  Both are designed to help fill in the damages picture.  Not that medical expenses are a precise indication of damages, but they provide some context as to case value.  Not to mention, bills can sometimes reflect treatment that defendants were not aware of.  This is also a good reason to get insurance records, but we digress.  What if plaintiff objects and raises the collateral source rule?  Then you find yourself at the intersection of reasonable value and collateral source.

That was where the court found itself in Shaw v. Shandong Yongsheng Rubber Co. Ltd., 2020 WL 1974762 (D. Colo. Apr. 24, 2020).  This is not a prescription drug or medical device case, but the issue could certainly arise in one of our cases, so we thought it was worth a mention.  Plaintiff brought a products liability suit for injuries she sustained in a car accident.  In response to defendant’s discovery requests – similar to those noted above — plaintiff produced her medical records and medical bills but redacted information she contended was non-discoverable under the collateral source doctrine.

Applying Colorado law, the collateral source rule bars evidence at trial of payments made by an independent entity or person that compensates plaintiff for his/her injuries.  Id. at *1-2.  Most commonly, that applies to insurance companies that pay or reimburse plaintiff’s medical expenses.  The policy reason behind the evidentiary bar is “because such evidence could lead the fact-finder to improperly reduce the plaintiff’s damages award.”  Id. at *1.  But, Colorado has a “competing” reasonable value rule which provides “that amounts paid for medical services is some evidence of the reasonable value of those expenses.”  Id.

What shouldn’t be overlooked is that those rules are talking about evidence at trial and the question before the court was an issue of discovery.  That detail was not missed by the judge.  But before even reaching that issue, the court had to address the question of whether medical lien companies were collateral sources.  A medical lien company purchases medical debt at a discount from healthcare providers and then seeks recovery from the patients owing the debt.  They are debt collectors.  But they are not collateral sources.  A collateral source compensates the plaintiff.  The medical lien companies are setup to receive compensation from plaintiffs, not the other way around.  Id. at *2-3.  Because medical lien companies are not subject to the collateral source rule, that rule can’t be use to block discovery of medical liens against plaintiff.  “For discovery purposes, amounts paid by medical lien companies are relevant to Plaintiff’s claimed damages, and this discovery is proportional to the needs of the case.”  Id. at *3.

Plaintiff had also redacted amounts paid by Medicare and Medicaid – which would be considered collateral sources.  But, the collateral source rule is “one of admissibility, not discoverability.”  Id.  That combined with Rule 26’s provision that discoverable evidence need not be admissible means that amounts paid for medical services are discoverable as “some evidence of the reasonable value of those medical expenses.”  Id.  So, at the discovery stage the reasonable value rule gets the right of way over the collateral source rule.  Whether that holds true at trial is a question left for the trial judge, and is the subject of a different blogpost of ours about phantom damages.