In In re: North Cypress Medical Center Operating Co., Ltd., the Texas Supreme Court dealt another blow to personal injury plaintiffs’ attorneys and medical providers who seek to recover artificially inflated medical expenses.

Following the Court’s earlier 2012 opinion in Haygood v. De Escabedo, personal injury plaintiffs whose medical expenses were reduced under health insurance contracts or Medicare/Medicaid limitations have only been allowed to introduce evidence of post-adjustment medical expense figures. In many cases, the adjustments by third-party payers have reduced the amount of medical expenses presented to jurors by as much as 50 to 80 percent. This reduction has also hampered plaintiffs’ attorneys ability to claim inflated future medical expenses and then multiply the total costs for suggested non-economic damages. To avoid the Haygood limitation, plaintiffs’ attorneys have often stopped their clients from submitting medical expenses to third-party payers and referred them to plaintiff-friendly medical providers who accepted letters of protection. When the letters were in place, the medical providers then charged highly inflated amounts for medical treatment. The full unadjusted amounts were presented to the jury and usually remained unpaid throughout the litigation until after a settlement or verdict, at which point the plaintiffs’ attorneys could negotiate a reduction.

In In re: North Cypress, the Texas Supreme Court issued another landmark ruling for personal injury litigation by holding that a party contesting the reasonableness of medical expenses is entitled to discovery of the following relevant documents and information:

  1. Contracts with private insurers regarding negotiated reimbursement rates the provider accepted for the same services at issue in the lawsuit;
  2. Medicare and Medicaid reimbursement rates for those services; and
  3. Annual Medicare cost reports submitted by the provider for the previous five (5) years.

Understandably, the discovery requests and the trial court’s order allowing them were vehemently opposed by the medical provider in the case (and many of the largest medical systems in Texas through amicus briefing). The providers argued the information was irrelevant to uninsured patients and that it was confidential information that should not be disclosed to third parties. The primary unstated ground, however, was that the contracted and Medicare/Medicaid rates were significantly lower than rates charged to the uninsured patient in that case.

The Texas Supreme Court addressed and rejected each of the hospital’s arguments in turn, following an extensive discussion of case law from other jurisdictions. The Court specifically concluded:

We fail to see how the amounts a hospital accepts as payment from most of its patients are wholly irrelevant to the reasonableness of its charges to other patients for the same services … We hold that the trial court did not abuse its discretion in concluding that the amounts North Cypress is willing to accept for patients is relevant to the reasonableness of its patient charges.

Although the Court’s holding pertained to discovery of reimbursements from third-party payers in the context of a disputed hospital lien, the Texas Supreme Court directly addressed relevance of the disputed information under Texas Rule of Evidence 401 in a manner that should open the door for admission of the agreements and reimbursement rates for defendants in personal injury litigation.