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Rule 414: Evidence of Medical Expenses “Paid versus Incurred”

By :Douglas A. Petho

Effective October 1, 2011 and applying to all actions occurring after that date, Rule 414 the North Carolina Evidence Code limits evidence offered to prove past medical expenses to evidence of the amounts actually paid to satisfy the bills that have been satisfied, regardless of the source of the payment, and evidence of the amounts actually necessary to satisfy the bills that have been incurred but not yet satisfied. this rule represents a dramatic change for both plaintiffs in personal injury attorneys not only in presenting cases at trial but also in negotiating settlements.

To understand this change is necessary to first understand the law as it existed prior to October 1, 2011. Under North Carolina’s “Collateral Source Rule”, evidence of payments made by health insurance, Medicare or Medicaid were not admissible in trial and were not to be considered by a jury in determining damages for medical expenses. The rationale being that these collateral payments for which the plaintiff often paid the premiums to receive the benefit, should not operate to reduce the liability of the defendant for the plaintiff’s medical bills. Under this scenario a plaintiff would be allowed to reap the rewards having their own insurance.

Here’s an example: Assume plaintiff is injured in an accident and incurs $15,000 in hospital and doctor bills. The plaintiff is covered by health insurance and files the bills through his or her own insurance. The plaintiff’s health insurance will likely pay the bills at a reduced amount due to contractual discounts they have with the medical provider. In this scenario the amount actually paid to the medical providers by health insurance could be as little as 40% of the amount charged. That means that the amount actually paid to the providers would be $6000. The plaintiff would never be required pay the amount discounted, in this case $9000. Under previous law, liability insurance would have been responsible for paying $15,000 in medical expenses. They would not be able to claim any write-offs, write-downs or other discounts the medical providers gave. The plaintiff would then be able to keep the difference between what was collected and what was needed to pay the medical bills.

Rule 414 however has changed this calculation. Under the above scenario, if the amount actually required to satisfy the medical bills is $6000, then that is all the liability insurance is responsible for paying. Despite the plaintiff having paid the health insurance premiums, the defendant, or rather the defendant’s insurance company, is allowed to reap the benefits of having injured someone who had their own insurance.

Rule 414 contains one important provision. It does not impose upon any party an affirmative duty to seek a reduction in billed charges to which the party is not contractually entitled.

While Rule 414 is a rule of evidence applying to the admissibility of evidence in a court of law, it has implications claims settlement. Many liability insurance adjusters are insisting upon receiving information concerning collateral source payments or discounts prior to negotiation. There is no legal requirement to provide this information contained in Rule 414, but the practical effect of denying this request may result in a liability adjuster refusing to make an offer. Under this scenario, a lawsuit will need to be filed and the information will have to be disclosed in discovery.