For years, Texans have been bombarded by television commercials, radio advertisements, and billboards from plaintiffs’ personal injury firms touting large recoveries. Meanwhile, the cost of medical treatment climbs to record highs. Texas law has long required a plaintiff seeking recovery of medical expenses to establish the amounts charged are reasonable. See In re K&L Auto Crushers, LLC, 627 S.W.3d 239 (Tex. 2021) (orig. proceeding) (citing Dall. Ry. & Terminal v. Gossett, 294 S.W.2d 377 (Tex. 1956)). Fortunately for the defense, Texas courts—both state and federal—have recently strengthened the ability to determine the reasonableness of medical expenses, by permitting discovery of the negotiated rates and fee schedules between medical providers, private insurers, and public-entity payors.
In re North Cypress Med. Ctr. Operating Co., 559 S.W.3d 128, 129 (Tex. 2018) (orig. proceeding): Laying the Foundation for K&L Auto Crushers & ExxonMobil:
In 2018, the Texas Supreme Court considered a case where an uninsured patient challenged a medical lien based on the reasonableness of her medical provider’s “chargemaster” or “full” rates. After the patient and hospital negotiated but were unable to reach an agreement for a reduction of the patient’s bill, the patient sued the hospital, seeking a declaratory judgment that the hospital’s charges were unreasonable. The Supreme Court held the negotiated rates a medical provider charged to private insurers and public-entity payors, while not dispositive, were at a minimum relevant and discoverable as to the issue of the reasonableness of the “full” rates the provider charged to an uninsured patient for the same services. “Considered together, reimbursements from insurers and government payers comprise the bulk of a hospital’s income for services rendered. It defies logic to conclude that those payments have nothing to do with the reasonableness of charges to the small number of patients who pay directly.”
K&L Auto Crushers, LLC, 627 S.W.3d 239 (Tex. 2021) (orig. proceeding): Extending North Cypress to Personal Injury Cases
In May 2021, the Texas Supreme Court extended the North Cypress holding to personal injury lawsuits, where the defense challenges the reasonableness of “full” or “chargemaster” rates a plaintiff seeks to recover. After a motor-vehicle accident with a tractor-trailer, the plaintiff received medical treatment and underwent multiple surgeries, accumulating $1.2 million in medical expenses. Plaintiff did not pay for the medical care nor did he provide information on private insurance or public benefits. Plaintiff’s attorney issued the medical providers “letters of protection,” stating that in lieu of immediate payment, they would receive future payment from the proceeds of any settlement or recovery, but only for any reasonable and necessary medical charges. Discovery disputes arose as to Defendants’ subpoenas served on the plaintiff’s medical providers, generally requesting documents and information on the negotiated rates and costs the providers charged insurance companies, public programs, and in-network health providers for the same services and materials billed to the plaintiff. K&L Auto argued its experts needed information about the medical providers’ negotiated rates and costs to adequately contest the reasonableness of the full rates the providers charged to the plaintiff. The trial court sustained the plaintiff and medical providers’ objections of relevance, overbreadth, undue burden and harassment, and the confidential, protected nature of such trade secrets.
The Texas Supreme Court concluded the subpoenas were sufficiently tailored and thus not overbroad. Second, while mindful that the medical providers were not parties to the lawsuit, the Court reasoned that the subpoenas did not present an undue burden on the medical providers. “Any weight the providers’ non-party status may have on the burden issue is substantially offset by the fact that the ‘letters of protection’ give the providers a direct financial stake in the resolution of the plaintiff’s claims.” In other words, the providers are invested in the outcome of the case, so they forfeit a degree of protection afforded to disinterested third parties who are subject to discovery. Finally, with regard to confidentiality and trade secrets, the Court expressed that since the information on negotiated rates for the same services during the same time period they were provided to the plaintiff is relevant to the defense, the trial court could and should have entered into a protective order to help reduce the harm of disclosure.
Consistent with—and extending—its 2018 North Cypress holding, the Texas Supreme Court held that documents and information on medical providers’ negotiated rates and costs for the same services provided to a plaintiff are discoverable. Important to the court’s determination was “the reasonableness of the $1.2 million in claimed medical expenses is central to K&L Auto’s defense. Depriving K&L Auto of key information relevant to that issue will place K&L Auto at a significant disadvantage.” However, K&L Auto Crushers is not without limitations. Not all communications/documents regarding medical providers’ negotiated rates with private insurers and public payors is discoverable, nor can a party discover all evidence tangentially related. In addition to being relevant, the Court cautioned discovery requests and subpoenas must be sufficiently narrowed, targeted, and proportional.
In re ExxonMobil Corp., 635 S.W.3d 631, 633 (Tex. 2021) (orig. proceeding): Reiterating North Cypress & K&L Auto Crushers
In November 2021, the Texas Supreme Court echoed its holdings in North Cypress and K&L Auto Crushers as to the relevance and discoverability of negotiated rates for private insurers and public payors, when considering the reasonableness of the “full” rates charged to self-paying patients/plaintiffs. ExxonMobil arises from an explosion and fire at an ExxonMobil plant, following which 60 plaintiffs sued seeking recovery of millions of dollars for past medical expenses. Many of the plaintiffs were treated by the same medical providers, under letters of protection issued by their attorneys. The trial court denied discovery about rates from the plaintiffs’ medical providers. Applying the same analysis employed in K&L Auto Crushers, the Texas Supreme Court held that evidence of the providers’ rates is relevant to determining whether such medical expenses are reasonable and thus recoverable.
Recent Application by State Appellate & Federal District Courts
In re Teran, No. 04-21-00436-CV, 2022 WL 849764 (Tex. App.-San Antonio, March 23, 2022, no pet. h.) (mem. op., not designated for publication): The plaintiff sought in excess of $1 million in damages, including $500,000.00 in medical expenses, following a motor-vehicle accident with a tractor-trailer. Over half of the plaintiff’s medical expenses came from one provider, a surgical hospital. The hospital designated plaintiff a “private pay patient,” because plaintiff did not provide the hospital with information on private insurance or government benefits covering treatment. Via subpoena, the defendants sought information on the negotiated rates the hospital charges private insurers and government payors for the same services it provided plaintiff. Following the Texas Supreme Court’s analysis in North Cypress, K&L Auto Crushers, and ExxonMobil, the Fourth Court of Appeals- San Antonio found the subpoena to the hospital tracked those requests the Texas Supreme Court already approved in K&L Auto Crushers and North Cypress, including:
• contracts with private insurers, Medicare, and Medicaid;
• the annual required Medicare cost report;
• Medicare and Medicaid reimbursement rates for each of the services the hospital provided to the plaintiff; and
• the reimbursement rates the hospital would have been paid for the services it provided the plaintiff pursuant to the hospital’s contracts with private insurers.
The hospital argued the defendants can challenge reasonableness of medical expenses through other means, such as expert counter-affidavits under Texas Civil Practice & Remedies Code §18.001. The court was unconvinced, noting that “because an opinion on reasonableness ‘must be based on relevant facts and data,’ . . . ‘denial of discovery here limits the requesting party to offering speculative evidence rather than the providers’ actual agreed rates with insurers and other payors.’”
Acuna v. Covenant Transport, Inc., SA-20-CV-01102-XR, 2022 WL 95241 (W.D.Tex. Jan. 1, 2022): The plaintiffs were involved in a motor-vehicle accident with a tractor-trailer, suffering serious injuries. Although the plaintiffs had health insurance, they elected not to bill their carrier, choosing to “self-pay” for treatment, including spinal surgeries. The plaintiffs presented nearly $700,000.00 in past medical expenses. The defendants served subpoenas on the medical providers and the providers raised numerous objections. The Western District- San Antonio Division relied on the Texas Supreme Court’s holding in K&L Auto Crushers, finding the defendants were entitled to the provider’s fee schedules and reimbursement rates for the year of the plaintiffs’ treatment and as limited to those services provided to the plaintiffs. The Court rejected the medical provider’s argument the requested fee schedules constitute protected trade secrets, noting contractually agreed reimbursement rates between health insurers and medical providers are regularly disclosed to patients, and thus, not a secret. Second, even if negotiated rates and fee schedules constitute a trade secret, such information is nonetheless discoverable as necessary for a fair adjudication of a defendant’s case. Performing a balancing test, the Court found the defendant’s need for the information outweighs any potential harm to the medical providers. Moreover, a protective order can adequately address any concerns about disclosure of confidential information or trade secrets, if any.
Zuniga v. Tri-National, Inc. SA-20-CV-01417-ESC, 2022 WL 255427 (W.D.Tex. Jan. 27, 2022): The Zuniga case generally followed the same factual and procedural backgrounds as those discussed above. The defendants’ subpoenas sought specific docouments in order to determine the reasonableness of the charges for medical services the plaintiff received. In discussing the proportionality and burden analysis undertaken in K&L Auto Crushers, the court stated: “The Texas Supreme Court found the following factors to bear significantly on the proportionality and burden analysis: (1) whether the requests were narrowly tailored to the time period, devices, and services at issue in the case; (2) whether the providers had entered into letters of protection with the plaintiff or plaintiff’s law firm to receive payment out of the proceeds of litigation; (3) the amount of the medical charges at issue and the extent of damages pleaded in the case; and (4) whether a protective order has been entered or could be entered to protect against disclosure of confidential or trade-secret information.” The Western District opined the information requested was relevant and discoverable for the purpose of determining reasonableness of the plaintiff’s medical expenses.
These recent opinions in both state and federal courts across Texas highlight defendants’ strengthened ability to obtain data critical to establishing whether plaintiffs’ ever-increasing medical expenses are reasonable. The cases decided to date focus on specific documents and language held to be discoverable as a matter of law, providing a solid foundation for defendants to obtain the key information necessary to challenge the reasonableness of plaintiffs’ medical expenses. As Texas law has long maintained: if the charges are not reasonable, they are not recoverable.Back to News