Lacy v. Bayhealth Medical Center, Inc.

Citation: Not availableDocket: K20C-10-005 NEP

Court: Superior Court of Delaware; May 25, 2022; Delaware; State Appellate Court

Original Court Document: View Document

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In the case Nathaniel Lacy, III v. Bayhealth Medical Center, Inc., the Superior Court of Delaware addressed Defendant’s Motion in Limine regarding the limitation of medical expense damages to amounts actually paid by TRICARE insurance. The court granted the motion in part and deferred it in part, allowing for further consideration. The plaintiff alleges medical malpractice due to the defendant’s failure to promptly diagnose and treat an arm fracture post-motorcycle accident in 2018. 

The legal framework discussed involves the collateral source rule (CSR), which balances the need for full compensation to the plaintiff with the principle that defendants should not benefit from collateral payments made to the plaintiff. The CSR aims to prevent a windfall to either party; however, the court noted that insurers typically have subrogation rights that mitigate potential windfalls. It also highlighted complexities arising from medical provider write-offs, where providers accept lower amounts than billed, complicating damage assessments. 

Delaware Supreme Court cases, such as Onusko v. Kerr and Mitchell v. Haldar, support the introduction of billed amounts as damages in private insurance scenarios, yet recent rulings indicate that the CSR may not always apply, particularly when write-off benefits accrue to taxpayers. The court plans to further analyze relevant Supreme Court decisions, Stayton v. Delaware Health Corporation and Smith v. Mahoney, to clarify the application of the CSR in cases involving government-sponsored health insurance programs.

The Supreme Court in Stayton determined that the CSR does not apply to medical expenses written off by providers under Medicare because: (1) plaintiffs cannot recover amounts above what Medicare pays, as this would compensate for non-existent harm; (2) provider write-offs do not constitute payments or benefits to the plaintiff; and (3) the federal government set reimbursement rates for taxpayer considerations. In Smith, similar findings were reached regarding Medicaid, emphasizing that: (1) the difference between standard rates and government fees is not a cost borne by anyone and does not contribute to making the plaintiff whole; (2) acceptance of lower rates is a provider business decision rather than a patient benefit; and (3) such reductions primarily benefit taxpayers. The Court thus views compensating plaintiffs for write-offs as ineffective since these amounts will not be paid, and they primarily benefit taxpayers, not plaintiffs.

The current case involves determining whether TRICARE, a Department of Defense healthcare program, fits this exclusion. TRICARE, which serves military personnel and their families, is linked to Medicare allowable charges. The plaintiff, an active-duty Air Force member at the time of a motorcycle accident, claims permanent impairment due to inadequate medical treatment, which was covered by TRICARE. 

The defendant asserts that TRICARE should be governed by the decisions in Stayton and Smith because it is federally funded and the financial benefits from write-offs accrue to taxpayers. Conversely, the plaintiff argues that TRICARE is distinct from Medicare and Medicaid due to: (1) its exclusivity to military members and dependents; (2) cost-sharing requirements for retired veterans; and (3) public policy considerations that warrant treating TRICARE similarly to private insurance to avoid penalizing military service.

However, the Court finds the plaintiff's arguments unconvincing in light of the precedents set in Stayton and Smith, concluding that TRICARE's characteristics do not sufficiently distinguish it from the previously analyzed government-funded programs regarding CSR applicability to provider write-offs.

Plaintiff's assertion that TRICARE is not a "public option" misinterprets legal precedents set in Stayton and Smith. The Supreme Court emphasized the funding source and benefits of insurance write-offs, concluding that TRICARE, like Medicare and Medicaid, relies on taxpayer funds, meaning its agreements with civilian providers benefit taxpayers broadly rather than just military personnel. Consequently, the argument regarding TRICARE's public option status lacks merit, as Delaware law prioritizes the public nature of funds over qualification mechanisms. 

Furthermore, the presence of cost sharing in TRICARE does not distinguish it from Medicare or Medicaid, both of which also include cost-sharing requirements. Medicare features a standard premium of $170.10, along with deductibles and co-insurance, covering 85% of service costs, leaving 15% for beneficiaries. Medicaid has a lower cost-sharing requirement capped at 5% of household income. In contrast, TRICARE mandates no cost for active-duty members, while retirees pay an annual fee of $350 per individual or $700 per family, along with co-pays ranging from $30 to $150, which represent 4-6% of total care costs.

The applicability of the CSR (Collateral Source Rule) to write-offs hinges on whether the write-off benefits the injured party or another entity, rather than the deservingness of the plaintiff. Public policy suggests that increasing liability amounts for injured plaintiffs could negatively impact the government's ability to provide affordable insurance to service members, harming taxpayers. Ultimately, TRICARE is treated similarly to Medicaid and Medicare regarding provider write-offs, as established by Delaware jurisprudence, and is supported by the Federal Medical Care Recovery Act, which enables the program to recover costs from third-party tortfeasors.

The federal government issued a lien letter to the Plaintiff for medical benefits, which TRICARE forwarded, indicating the actual amount paid for medical treatment. TRICARE, similar to Medicare and Medicaid, negotiates contracts with providers who must participate in Medicare, and its payment limits are linked to Medicare’s standards. In this case, TRICARE paid approximately $20,000 for medical expenses that were billed at around $98,000, resulting in a significant write-off of $78,000. This reduction aligns with the Supreme Court’s considerations from Stayton and Smith, as the Plaintiff is not liable for the write-off amount, and ultimately, taxpayers bear the costs of TRICARE. Therefore, the Court ruled that only the amount paid by TRICARE would be presented to the jury regarding past medical expenses. 

Future expense reductions are not addressed at this time, as TRICARE is an optional benefit for military retirees based on service length and does not impose penalties for late enrollment. If the Plaintiff secures private employment with health benefits, TRICARE would serve as a secondary payer. Additionally, coordination of benefits with Medicare will occur when the Plaintiff becomes eligible for it. The Court concluded it would defer judgment on the application of the CSR for future expenses until more factual information is available. The motion was granted for past medical expenses, limiting evidence to TRICARE's payments, while future expenses await further consideration.