Indiana Supreme Court Broadens Application of Statutory Collateral Source Rule By “Charting a Middle Course”

March 3, 2017 / Writing and Speaking

In Stanley v. Walker, 906 N.E.2d 852 (2009), the Indiana Supreme Court interpreted the state’s collateral source statute to permit a defendant in a personal injury action to introduce evidence of discounted medical payments negotiated between the plaintiff’s medical providers and his private health insurer to prove the reasonable value of medical services, as long as insurance is not referenced.  The statute abrogates the common law rule which makes evidence of collateral source payments inadmissible.  In Patchett v. Lee, 60 N.E.3d 1025 (Oct. 21, 2016), the Court shut down the frequent argument of plaintiffs’ lawyers that Stanley applies only to amounts paid by private health insurance companies, not government programs such as Medicare and Medicaid.


In Patchett, the plaintiff was insured under the Healthy Indiana Plan (HIP), a government sponsored healthcare program under which HIP medical providers accepted $12,051.48 in full satisfaction of the plaintiff’s accident related medical bills totaling $87,706.36 based on maximum allowable reimbursement rates.


The Indiana Supreme Court rejected the reasoning of the lower courts that HIP’s maximum allowable rates did not reflect the reasonable value of medical services provided because they were not negotiated at “arm’s length between a medical provider and an insurance company,” but rather “political and budget concerns” underlying the government program.  The Court concluded that, in determining relevance of collateral source evidence, “[t]he salient fact is not whether (or to what extent) the reimbursement rates were negotiated.  What counts is that the participating provider has agreed to accept the lower rates as payment in full.”  It noted that the participation of medical providers in the government program was entirely voluntary and their agreement to accept the reduced rates required by the program is “relevant, probative evidence of the reasonable value of medical services,” which is the measure for recovery of medical expenses under Indiana tort law.

The Court noted that, since it decided Stanley in 2009, six states (West Virginia, Maryland, Colorado, Massachusetts, Minnesota and Oregon) have precluded the admission of discounted reimbursements in determining the reasonable value of medical services.  Two states (Delaware and Texas), limit recovery to the discounted amount actually paid for medical services.  Two states (California and Kansas), follow Indiana’s “middle ground” course which Patchett found to be the “fairest approach.”  The “middle ground” approach adopted in Stanley and reaffirmed in Patchett permits the fact finder to consider both the amount originally billed and the reduced amount actually paid and accepted, “along with any other relevant measures of the reasonable value of medical care,” in determining the amount of damages that will make a plaintiff whole.

Learning Point:  Patchett suggests that any relevant evidence of the reasonable value of medical care is admissible on the issue of fair value of medical treatment, as long as the evidence is not substantially outweighed by the danger of unfair prejudice, confusion or needlessly presenting cumulative evidence.  Patchett also instructs that the admissibility of evidence is usually left to the sound discretion of the trial court but, when admissibility depends on the proper interpretation of a statute, a trial court’s decision will be reviewed de novo on appeal.  Thus, appellate challenge to the introduction of evidence under a statute may be governed by the most favorable standard of review.  Litigants should keep that in mind when erroneous admission of evidence significantly impacts the potential or actual judgment value of the case.

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