In a much-anticipated decision in which TCJL, TADC, TLR and many other organizations submitted amicus briefs, the Texas Supreme court today decided that a defendant’s discovery requests for evidence relevant to the reasonableness of a medical provider’s charges for treatment in a personal injury case is not only permitted by §41.0105, CPRC (the “paid or incurred” rule) but imperative under the longstanding common law doctrine that requires medical expenses in such cases to meet the “reasonable and necessary” test. The decision represents a landmark vindication of the Legislature’s 2003 reforms and a repudiation of the increasingly common practice in personal injury lawsuits of submitting the provider’s chargemaster rates as “reasonable and necessary,” sometimes under letters of protection with the plaintiff’s attorney, and blocking the defendant from discovering the amounts received by the provider for the same services from third-party payers.

The case, In Re K&L Auto Crushers, LLC and Thomas Gothard, Jr. (No. 19-1022), arose from a vehicular accident between a motorist and a commercial truck. The two drivers exchanged information, took photographs, and drove away without reporting any injuries. The plaintiff then filed suit against the truck driver and his employer, K&L Auto Crushers, seeking, among other damages, $1.2 million in medical expenses for multiple surgeries and related treatment, for which the plaintiff neither paid nor sought third-party reimbursement. The plaintiff’s attorney entered into a letter of protection with the medical providers under which the attorney promised to protect the providers’ interest in the plaintiff’s account when the claim was settled, but only for “reasonable and necessary expenses.”

The defendants filed controverting affidavits under §18.001, CPRC, contesting the reasonableness of the charges. They also sought discovery of the providers’ billing practices and rates for services and eduipment specific to the plaintiff’s treatment, relying on SCOTX’s decision in In Re N. Cypress Med. Ctr. Operating Co., 559 S.W.3d 128, (Tex. 2018) (orig. proceeding). As you recall, in North Cypress SCOTX permitted an uninsured patient against whom the hospital sought to enforce a lien for chargemaster rates to obtain discovery of the hospital’s reimbursement rates with private insurers, Medicare, and Medicaid, as well as the provider’s costs for the equipment and devices used in the patient’s treatment. Here, the defendants narrowed their initial discovery request to bring it within the parameters of North Cypress and further expressed a willingness to enter into a protective order to protect the confidentiality of the information. A Dallas district judge, as has become almost standard procedure in trial courts across the state, quashed the defendants/ discovery requests without explanation and, for good measure, struck their §18.001 controverting affidavits. The defendants sought a writ of mandamus, which the Dallas Court of Appeals denied.

Justice Boyd, joined by Chief Justice Hecht and Justices Guzman, Devine, Lehrmann, Blacklock, and Busby, wrote the majority opinion. Justice Huddle filed a concurring opinion, joined by Justice Bland and in part by Justice Guzman. Following a lengthy development of the facts of the discovery dispute at the trial court, the Court squarely faced the legal basis of the plaintiff’s argument that §41.0105, CPRC, allows the plaintiff to submit whatever medical charges the plaintiff actually “paid or incurred,” without regard to their reasonableness or necessity. The Court rejected this reading of the statute, noting that nothing in §41.0105 limits or pre-empts a century or more of Texas common law that medical expenses claimed as damages must be reasonable and necessary. The plaintiff argued further that North Cypress should not apply in a personal injury context because the tortfeasor would receive a “windfall” by reducing the amount the tortfeasor was required to pay while requiring the plaintiff to pay the full billed amount to the provider (conveniently overlooking under letters of protection and similar “arrangements” plaintiffs don’t pay anything). The Court likewise rejected this argument, observing that nothing in the record shows that the plaintiff was ever obliged to pay the providers an unreasonable amount for their services. It goes on to say that tortfeasors are responsible only for losses naturally resulting from a wrongful act, not what a claimant may or may not have agreed to pay a medical provider.

The Court found no distinction between the hospital lien context of North Cypress and the personal injury context here. As Justice Boyd opined, “while certainly ‘not dispositive,’ the negotiated rates the providers charged to private insurers and public payors for the medical services and devices provided to [the plaintiff], and the costs the providers incurred to provide those services and devices, are ‘at least relevant’ to whether the chargemaster rates the providers billed to [the plaintiff] for the same services and devices are reasonable” (Op. at 12). The Court noted that proportionality, overbreadth, and the extent the request burdens a non-party still limit the scope of discovery under its holding, but it left very little doubt that discovery requests narrowly tailored to North Cypress cannot be denied by a trial court without abusing its discretion. With respect to the alleged burden on the providers, however, the Court observed that since they made a deal with the plaintiff’s attorney to obtain a financial stake in the litigation, they should not object to responding to reasonable discovery requests arising from that litigation.

The bottom line: trial courts must grant reasonable and proportional discovery of “the rates healthcare providers charge to private insurers and public payors and their costs for providing services to a patient constitute relevant facts and data.” Trial courts may still limit discovery to mitigate the burden on a non-party, to protect confidential trade secrets, and to assure its proportionality, but to deny discovery of relevant evidence without which the defendant cannot contest the reasonableness of the charges constitutes an abuse of discretion for which no adequate remedy other than mandamus is available. The Court vacated the trial court’s order denying reconsideration of the defendants’ narrowly tailored discovery request and to consider it in light of the opinion.

When paired with its decision two weeks ago in In Re Allstate (20-0071), the Court has now addressed most, if not all, of the litany of abuses of the paid or incurred rule and §18.001 medical expense affidavits. These decisions wholly vindicate the Legislature’s wisdom in enacting §41.0105, CPRC, in 2003 and restore Chapter 18, CPRC, to its original purpose of streamlining the submission of medical charges into evidence. As we stated in our brief in this case, the aim of the plaintiff’s lawyers tactics has been to “revive relatively low-dollar claims that otherwise would have been settled expeditiously under a proper application of the paid or incurred rule. But not only low-dollar claims. With the prospect of submitting into evidence significantly inflated expenses back in play, we can expect the frequency and severity of claims to start going up again after a period of relative stability. We can also expect defendants to reconsider whether to litigate claims in which liability is a significant issue in light of the increased costs of discovery and higher exposure to inflated health care expense claims. If this practice continues to spread, it will not take long for the paid or incurred rule to become a dead letter, eliminating a foundational part of the 2003 medical and general liability reforms.” With In Re Allstate and In Re K&L Auto Crushers now on the books, we trust that trial courts will follow the law—as they should have been doing all along.

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