The opinion is subject to correction prior to publication in the PACIFIC REPORTER, and readers are encouraged to report any errors to the Clerk of the Appellate Courts in Anchorage, Alaska. In the case of Thomas J. Knolmayer, M.D. and Alaska Trauma and Acute Care Surgery, LLC (Supreme Court No. S-17792, No. 7631, dated November 18, 2022), the Supreme Court of Alaska addresses the application of Alaska Statute 09.55.548(b) regarding compensation for medical malpractice claimants. The statute mandates that damages awarded to claimants will be reduced by any compensation received from a collateral source, except when the source is a federal program required to seek subrogation.
The court determines that an employer’s self-funded health benefit plan governed by the federal Employee Retirement Income Security Act (ERISA) does not qualify as a 'federal program' under this exception. Consequently, the statute necessitates a reduction in damages awarded to claimants who have received compensation from an ERISA plan. However, the court finds that the statute's differentiation among types of medical malpractice claimants does not align with its purpose of preventing double recovery, as claimants with health insurance are similarly unlikely to experience double recovery compared to others. This distinction is deemed a violation of the equal protection guarantee in the Alaska Constitution.
The factual background involves plaintiff Charina McCollum, who underwent surgery by Dr. Knolmayer in May 2015, during which a surgical error occurred. Following complications, she required additional medical interventions, and most of her healthcare expenses were covered by a health plan provided by her husband Jason McCollum's employer, Lowe’s Companies, Inc.
The Lowe’s Plan includes a subrogation right allowing it to pursue claims against any party to recover benefits it has paid. It also holds a right to reimbursement from any damages McCollum recovers for her injury, entitled to 100% of benefits paid without deducting attorneys’ fees or applying equitable doctrines. This includes an equitable lien that overrides state laws regarding assignment of rights, regardless of how judgments or settlements are classified. If McCollum's recovery is less than the benefits paid, the Plan is entitled to the full recovery amount.
In February 2016, McCollum initiated a medical malpractice lawsuit against Knolmayer and Alaska Trauma and Acute Care Surgery. McCollum sought a legal ruling on whether her medical expenses covered by the Lowe’s Plan could be recovered, citing Alaska Statute 09.55.548(b), which allows recovery only for damages exceeding collateral source compensation. McCollum argued that ERISA governs the Lowe’s Plan and preempts state laws affecting employee benefit plans, thereby allowing her to claim medical damages including those from the Plan. Knolmayer contended that ERISA does not preempt the state statute because it does not impose requirements on ERISA plans.
McCollum supported her position with a letter from the Plan’s representative indicating the Plan's intention to seek full reimbursement after settlement. She contended that the state statute limits her recovery and, consequently, the Plan's recovery, undermining ERISA’s goal of uniform health plan administration. Knolmayer countered that the statute only affects the defendant’s liability and does not restrict the Plan’s reimbursement rights post-lawsuit.
On October 1, 2018, the court ruled that ERISA does not preempt AS 09.55.548(b), stating that the statute reduces the plaintiff's award by the insurer’s medical payments, with that amount set aside for reimbursement. The court concluded that the statute does not hinder the Plan’s ability to seek reimbursement, thereby not affecting the operation of ERISA plans.
Knolmayer sought partial reconsideration of an October 1 order, not disputing that ERISA does not preempt AS 09.55.548, but challenging the ruling that a portion of the plaintiff’s recovery would be set aside for the insurer's reimbursement. He contended this 'set-aside' contradicted the statute's intent to limit medical malpractice awards and common law principles by allowing the insurer to recover what the plaintiff could not. McCollum opposed, arguing that Knolmayer's interpretation would allow the insurer to claim her entire recovery, undermining fundamental tort law protections. On June 25, 2019, the court partially granted reconsideration, agreeing with Knolmayer that AS 09.55.548(b) prevents the collection of the Plan's subrogated interest against Defendants by the Plaintiff, vacating the prior order's provisions for earmarking medical costs to the non-party Plan. However, the court clarified that the Plan could still recover its subrogated interest if it joined the action.
McCollum then sought clarification on whether the Plan could assign its subrogated claim to her, which the court denied as an advisory opinion. In October 2019, McCollum notified the court of an impending assignment from the Plan, prompting Knolmayer to argue that the Plan needed to join as a party to recover its expenditures. McCollum, wanting to ensure the validity of the assignment, considered seeking involuntary joinder of the Plan. In November 2019, she moved to join the Plan's representative as a co-plaintiff, but the defendants contended that the Plan had opted to ratify her action and could not be compelled to join, also claiming that any new claim would be time-barred. The court denied the joinder motion in May 2020. Subsequently, on April 30, 2020, the court vacated previous orders and clarified that ERISA does not preempt AS 09.55.548, affirming that AS 09.55.548(b) allows McCollum to recover medical expenses paid by the Plan, as it qualifies under a statutory exception for federally mandated subrogation, being an ERISA-governed employee welfare benefit program.
According to McCollum’s contract with the Plan and the Plan’s correspondence with her counsel, the Plan is obligated to pursue subrogation and reimbursement. Consequently, since McCollum’s federally-governed health insurance plan is classified as a "federal program that by law must seek subrogation," any evidence of compensation or payments from this plan is inadmissible in court, meaning her damages cannot be reduced based on these payments.
In May 2020, Knolmayer sought review of a superior court order that determined the Lowe’s Plan is a "federal program that by law must seek subrogation" under AS 09.55.548(b). The court granted this petition and posed several questions, including whether the Lowe’s Plan qualifies as such a federal program, whether AS 09.55.548(b) restricts a medical malpractice plaintiff from recovering damages paid by a subrogated insurer, whether an insurer can assign a subrogated claim to a plaintiff, and if the statute violates constitutional guarantees under the Alaska Constitution.
The interpretation of AS 09.55.548, the potential preemption by ERISA, and the statute’s constitutional implications are all legal questions reviewed de novo. The case examines how AS 09.55.548(b) impacts damage recovery in medical malpractice cases when medical expenses are partially covered by an employer’s self-funded health plan governed by ERISA. Traditionally, the collateral source rule prevented a tortfeasor from reducing liability based on a plaintiff's compensation from other sources. However, AS 09.55.548(b) modifies this rule for medical malpractice claims, allowing recovery of damages only for amounts exceeding what was compensated from collateral sources, with the exception for federal programs that must seek subrogation. This exception acknowledges that programs like Medicaid are legally required to recover expenditures related to torts.
Allowing a claimant to recover payments from a subrogated federal program does not provide a windfall to the plaintiff, as the federal program ultimately recovers these amounts. Medicaid is not the sole collateral source that seeks reimbursement when a tortious third party is involved; health plans often have explicit subrogation rights and can require insured individuals to reimburse them for payments made when damages are recovered from a third party. In the case at hand, the Lowe’s Plan has a contractual right to recover all benefits paid, regardless of the plaintiff’s total recovery, leading to a 'double deduction' of medical expenses from the plaintiff’s damages award—first by the court and then by the health plan.
This double deduction can result in the plaintiff receiving less compensation than entitled, benefiting both the insurer and the tortfeasor. For instance, an injured individual incurring $500,000 in medical bills and losing $500,000 in future income could see the defendant held liable for only $500,000, as the insurer would reclaim the medical costs from any awarded damages. The injured party could end up worse off than an uninsured individual who could recover all damages after paying medical bills.
Knolmayer argues this outcome reflects a legislative choice to limit awards and the insured's acceptance of the insurance terms, while McCollum fears a similar harsh outcome in her case due to AS 09.55.548(b), which may prevent her from recovering the $349,049.87 paid by her Plan and limits her to $250,000 in non-economic damages. McCollum and supporting amici propose several interpretations of AS 09.55.548(b) to avoid these consequences, claiming that since her health benefit plan is governed by ERISA, it should not preclude her from recovering damages compensated by the Plan. They assert that AS 09.55.548(b) was not intended to lead to a double deduction for medical malpractice plaintiffs. If their interpretations are dismissed, McCollum contends that the Plan may have assigned its subrogated claim to her, allowing her to recover damages otherwise barred by AS 09.55.548(b).
McCollum and amici contend that ERISA preempts AS 09.55.548(b) in McCollum's case, raising questions about the legislative intent behind the statute concerning subrogation and reimbursement rights of collateral sources. Central to this inquiry is whether the legislature aimed to prevent only the injured party from recovering collateral source payments or also restrict the collateral sources from recouping those payments. This issue is pivotal for assessing the scope of exemptions under federal programs, the claim of the Lowe’s Plan, and ERISA's preemption over the state statute, as well as the constitutional implications under Alaska's equal protection and due process guarantees.
Knolmayer argues that the legislature did not intend to eliminate collateral sources' subrogation rights but sought to prevent claimants from recovering amounts that rightfully belong to insurers, allowing insurers to pursue these amounts from tortfeasors directly. While this interpretation is largely agreed upon by the parties, it remains a critical point for independent examination.
Statutory interpretation hinges on the language and purpose of AS 09.55.548(b), which applies recovery limitations specifically to "claimants," distinguishing them from "collateral sources." The statute does not explicitly restrict a subrogated insurer's right to pursue its claim against a tortfeasor. However, traditional subrogation principles suggest that if a claimant cannot recover for losses compensated by a collateral source, the subrogated collateral source may also be barred from recovering those amounts. Consequently, while the statute does not overtly limit collateral sources' rights, the implications of subrogation principles indicate that the legislature might have intended to restrict recovery for both claimants and collateral sources.
The legislative history surrounding Alaska Statute 09.55.548(b) reveals that it was part of a broader medical malpractice reform aimed at addressing high insurance costs. The Medical Malpractice Insurance Commission, established by Governor Jay Hammond, intended to limit recovery for both injured individuals and their insurers. The original draft of the statute included a clear provision disallowing collateral source subrogation, aimed at preventing double recovery for losses compensated by other sources. The Commission believed that requiring patients to utilize their first-party coverages would reduce overall costs and complications associated with subrogation.
The Commission’s rationale emphasized eliminating double recovery and simplifying the subrogation process. However, the legislature later amended the bill, removing the explicit prohibition on collateral source subrogation rights. This change may suggest a shift in legislative intent, possibly indicating a desire to allow insurers to recover losses while still preventing double recovery for claimants. The amendment implies that the legislature might have opted for a different policy approach than that proposed by the Commission, favoring a balance between allowing insurer recovery and limiting claimant recovery from collateral sources.
A proposed policy to allow health insurers to recover costs associated with malpractice could effectively lower overall health insurance expenses, reshaping the distribution of financial losses. The Commission recognized that tort law modifications inherently shift loss burdens to different groups. The legislature has the authority to draw different conclusions from the Commission's findings. The Southern District of New York interpreted New York's statute, Section 4545, as preventing double recoveries but not infringing on insurers' subrogation rights. It emphasized that the statute aims to avoid granting tortfeasors undue benefits from an injured party's insurance.
Further, the interpretation of AS 09.55.548(b) to maintain collateral source subrogation rights is seen as a rational and plausible reading of the statute. Significant amendments by the legislature to the Commission's draft suggest that the Commission’s original intent regarding subrogation should not be assumed to reflect legislative intent. Courts in various jurisdictions have similarly ruled that statutes like AS 09.55.548(b) do not eliminate insurers' subrogation rights, as demonstrated by the Supreme Court of Florida's analysis of a related statute, which confirmed that it merely limits a plaintiff's recovery without barring insurers from seeking compensation for their losses. The federal court also maintained that the principle of subrogation is deeply rooted in common law, requiring explicit legislative intent to disrupt it, which was not present in the statute.
In any personal injury, property damage, or wrongful death action where the plaintiff seeks damages for medical, dental, custodial, or rehabilitation costs, as well as loss of earnings or other economic losses, evidence is admissible to show that such costs may be compensated by collateral sources—excluding life insurance and certain reimbursable payments. If the court finds that these costs will likely be covered by collateral sources, it must reduce the damage award accordingly, accounting for premiums paid by the plaintiff for the two years preceding the action and the projected future costs of maintaining such benefits.
The text emphasizes that subrogation rights of collateral sources are preserved, as there is no clear legislative intent to modify common law regarding subrogation. Consequently, while injured parties cannot recover amounts already compensated by collateral sources, those sources retain the right to pursue recovery from the tortfeasor directly. Specifically, AS 09.55.548(b) prohibits medical malpractice plaintiffs from claiming damages for amounts compensated by collateral sources, including insurers. Plaintiffs can only recover damages exceeding those received from these sources, and there are no exceptions for collateral sources with subrogation rights, except for specific federal programs and life insurance death benefits.
Moreover, the statute allows for consideration of depleted coverage, enabling plaintiffs to recover past medical expenses paid by collateral sources by estimating the probable value of their rights to coverage that have been exhausted. This provision aims to ensure that any impairment of the claimant’s rights can be accurately assessed.
McCollum contends that the trial court has the discretion to replace collateral sources that have been "exhausted or depleted" during the post-trial offset hearing if it can be shown that the claimant's rights were impaired due to reimbursement or subrogation. However, this interpretation is deemed unpersuasive. The term "coverage exhausted or depleted by payment of these collateral benefits" refers to situations where a claimant has limited insurance coverage, and the collateral benefits have significantly consumed that coverage. The statute does not mention subrogation or reimbursement.
McCollum also cites legislative history indicating that the legislature did not intend for injured individuals to absorb losses to protect negligent parties. While there is agreement that the intent of AS 09.55.548(b) was to prevent double recovery, the plain language of the statute cannot be overlooked. The legislature recognized that collateral sources might have subrogation rights but exempted only specific types of collateral compensation from the statute. There is no legislative history provided by McCollum to suggest an alternative interpretation.
Additionally, McCollum references rulings from other jurisdictions to support her claim that AS 09.55.548(b) should not allow for double deductions. However, these cases, which interpret different laws modifying the collateral source rule, are not applicable to Alaska's statute. The Iowa Supreme Court's decision in Toomey v. Surgical Services, P.C. is cited, where a statute modifying the collateral source rule prevented a double deduction scenario. Importantly, Lowe’s right to reimbursement is contractual rather than statutory, and McCollum fails to identify any statute that necessitates a departure from the clear language of AS 09.55.548(b) to fulfill legislative intent.
Iowa law in Loftsgard v. Dorrian allows for evidence of collateral source indemnification or subrogation rights, which contrasts with Alaska's AS 09.55.548(b), as the latter lacks similar provisions. Thus, the Iowa decisions do not clarify the intent of the Alaska legislature regarding AS 09.55.548(b). Additionally, In re Sept. 11 Litigation does not bolster McCollum's argument, as it determined that New York's statute does not prevent insurers from pursuing subrogated claims, but does not imply claimants can recover such amounts. Consequently, AS 09.55.548(b) prohibits medical malpractice plaintiffs from recovering damages already compensated by a subrogated insurer.
The superior court's ruling that the Lowe’s Plan constitutes a “federal program that by law must seek subrogation” under AS 09.55.548(b) is disputed. Knolmayer contends that this exception does not apply to self-funded ERISA plans like the Lowe’s Plan, a position that is supported by an interpretation of the statutory language. The term “federal program” is defined to exclude privately funded plans, as it typically refers to programs established and funded by the federal government, such as Medicare and Medicaid. The Lowe’s Plan is funded and administered by Lowe’s Companies, Inc., a private entity, thus not qualifying as a federal program. McCollum's arguments that the legislature did not limit the exception to Medicaid and that ERISA governance implies federal status are rejected, reinforcing that the Lowe’s Plan does not fit the definition of a federal program.
ERISA is a federal law, but not all plans under its authority qualify as “federal programs” in the traditional sense. McCollum contends that the Lowe’s Plan is a federal program due to ERISA's enforcement mechanisms, allowing insured parties, fiduciaries, and plan administrators to sue to enforce plan terms. However, the existence of a federal cause of action does not classify the parties involved as federal programs. The Lowe’s Plan, being privately funded and administered, does not meet the common definition of a federal program. Additionally, it does not fulfill the criteria of AS 09.55.548(b) as it is not an entity legally required to seek subrogation. The Plan's terms permit it to pursue recovery but do not impose a legal obligation to do so. This distinction emphasizes that having a right to pursue recovery does not equate to being compelled by law. Amicus curiae Premera Blue Cross argues that the assumption of the Plan seeking recovery is reflected in its financial reporting obligations, but such financial management decisions do not equate to legal mandates. Even if the terms suggested a requirement for the administrator to seek recovery, those would still be contractual obligations rather than legal ones. The legislative history of AS 09.55.548(b) supports a narrow interpretation of "federal program required by law to seek subrogation," rejecting a broader interpretation that would include any entity with subrogation rights under federal law, such as ERISA-governed health benefit plans.
Premera argues that the "federal program" exception in AS 09.55.548(b) was intended by the legislature to allow for reimbursement from tort recoveries when mandated by federal law, as it would otherwise hinder claimants' ability to recover losses. McCollum supports this, citing legislative history that aims to balance the interests of claimants with those of insurers and healthcare providers, suggesting a broad interpretation of the exception to encompass ERISA plans. However, neither Premera nor McCollum provides legislative history that specifically addresses ERISA plans. Instead, their arguments rely on the general statutory purpose. The “federal program” exception likely originated from the need to respect federally protected subrogation rights, as seen in the 1990 Supreme Court case FMC Corp. v. Holliday, which established ERISA's preemption over state statutes that negate insurers’ subrogation rights.
Premera contends that this interpretation should include ERISA plan payments requiring reimbursement due to federally enforceable rights, aligning with the legislative goal of preventing double recoveries. Nonetheless, there is limited evidence that the legislature considered ERISA plans when enacting AS 09.55.548(b) in 1976, only two years after ERISA's enactment, which does not address subrogation or reimbursement rights. The scope of ERISA's preemption was clarified much later. Consequently, the language of AS 09.55.548(b) specifically refers to "federal programs required by law to seek subrogation," suggesting that it does not extend to private entities with contractual subrogation rights. As such, interpreting the exception to include ERISA plans lacks a reasonable basis without evidence of legislative intent to do so.
A self-funded health benefit plan governed by ERISA possesses contractual rights of subrogation and reimbursement but is not classified as a federal program required to seek subrogation. Compensation received by McCollum from the Lowe’s plan is subject to the recovery limitations of AS 09.55.548(b). A claimant cannot recover collateral source payments that AS 09.55.548(b) disallows by obtaining an assignment of the subrogated claim from the collateral source. McCollum's suggestion that the Lowe’s Plan could assign its subrogated claim to her to recover damages is rejected. The court emphasizes that while an insurer may assign its subrogated claim to the insured for collection, such a claim remains subject to AS 09.55.548(b)'s limitations. The ruling clarifies that the insurer’s subrogation occurs automatically upon payment, transferring the claim to the insurer. The court also notes that even if the Lowe’s Plan ratified McCollum's suit, such ratification does not circumvent AS 09.55.548(b), which prevents the insured from recovering amounts due to the insurer.
McCollum contends that a claimant can circumvent the statutory bar on recovery by having a subrogated insurer assign its claim to the claimant rather than ratifying the claimant's pursuit of that claim. However, the distinction between "assign" and "ratify" is deemed semantic, as both allow the injured party to pursue the insurer's claim while the insurer retains the right to recoup any proceeds from the insured. The legislature, familiar with subrogation and ratification concepts when enacting AS 09.55.548(b), likely did not intend to permit evasion of the recovery bar through this semantic distinction. Consequently, a claimant cannot recover damages compensated by a collateral source via assignment from that source.
Regarding ERISA, it does not preempt AS 09.55.548(b)’s restriction on claimants recovering collateral source payments. Despite the court not requesting briefing on preemption, significant arguments have been made by McCollum and Premera concerning it. They assert that AS 09.55.548(b) could impair insurers' contractual reimbursement rights, necessitating insurers to pursue subrogated claims against the tortfeasor for full recovery. McCollum argues that this impairment warrants ERISA preemption, especially when the collateral source is a self-funded health plan like the Lowe’s Plan. Under ERISA's preemption clause, any state law that relates to an ERISA-covered employee benefit plan is preempted unless it regulates insurance. The test for ERISA preemption involves determining if a state law "relates to" an ERISA plan, recognizing that state laws regulating insurance are saved from preemption, but an ERISA plan is not considered an insurance entity under state laws that regulate insurance.
ERISA plans are subject to state insurance regulations as they pertain to insurers, but these plans cannot be directly regulated by such laws. The preemption analysis begins by determining if AS 09.55.548(b) relates to an ERISA plan. The U.S. Supreme Court defines that a law relates to an ERISA plan if it has a connection or reference to it. In FMC Corp. v. Holliday, the Court found that ERISA preempted a Pennsylvania antisubrogation law, concluding that the law had a reference to benefit plans governed by ERISA since it applied to any program for payment of benefits, including ERISA plans. However, the Court has refined this standard in later decisions, stating that a law refers to ERISA only if it acts exclusively on ERISA plans or if ERISA plans are essential to its operation.
The case of Rutledge v. Pharmaceutical Care Management Association illustrates this revised standard. The Arkansas law in question required pharmacy benefit managers (PBMs) to reimburse pharmacies based on their purchase prices of drugs, but the Court ruled that this law did not refer to ERISA plans because it applied to PBMs regardless of whether they managed ERISA plans. Thus, the law was deemed generally applicable and not exclusive to ERISA plans, which means it does not trigger ERISA preemption. The analysis emphasizes that only laws directly affecting ERISA plans or essential to their operation are relevant for determining preemption.
The Court evaluated a law that imposed surcharges on hospital billing rates for patients insured by providers other than Blue Cross/Blue Shield, concluding that these surcharges would likely be passed on to insurance buyers, including ERISA plans. The Court dismissed claims that the law referenced ERISA plans, noting that surcharges were applicable to patients and health maintenance organizations (HMOs) regardless of whether the coverage involved ERISA plans. The ruling drew parallels to California Division of Labor Standards Enforcement v. Dillingham Construction, where a law allowing lower wages for apprentices in approved programs was similarly found not to directly reference ERISA plans.
Alaska Statute 09.55.548(b) was determined not to operate exclusively on ERISA plans, as it applied to various collateral sources requiring subrogation and death benefits under life insurance, independent of ERISA's existence. The statute was compared to other laws that were indifferent to ERISA, indicating no direct relation or impermissible connection to ERISA under the established legal standards. The Supreme Court's analysis in FMC Corp. indicated a law could have an impermissible connection to ERISA if it compelled plan administrators to navigate conflicting state regulations, which could disrupt the administration of nationwide plans. The Court's decisions, culminating in Rutledge, clarified that ERISA pre-empts laws that dictate specific structuring of benefit plans.
ERISA preempts state laws that dictate specific rules for determining beneficiary status or that govern central matters of plan administration. A state law is preempted if it forces an ERISA plan to adopt a particular coverage scheme or interferes with uniform plan administration. However, not all state laws affecting ERISA plans create an impermissible connection; laws that merely affect costs do not trigger preemption. For example, in *Travelers*, the Court ruled that a surcharge on hospital billing rates did not preempt ERISA because it did not bind plan administrators to specific choices, even if it indirectly incentivized plans to prefer certain insurers.
In *Rutledge*, a law requiring pharmacy benefit managers to reimburse pharmacies at a minimum rate was deemed a cost regulation, not an impermissible connection with ERISA, as it did not dictate plan choices. The Court emphasized that cost uniformity was not a preemption objective, and the law's effects were not acute enough to dictate plan decisions.
Regarding AS 09.55.548(b), which reduces plaintiffs' recoveries by the amount of collateral source payments, it does not abrogate subrogation rights and thus does not create an impermissible connection with ERISA. While this law may increase costs for ERISA plans by limiting the recoverable amount from tortfeasors, plans can still recover full expenditures through subrogation despite incurring legal costs in the process.
ERISA does not preempt state regulations that lead to increased costs or altered incentives for ERISA plans, as illustrated by AS 09.55.548(b), which may raise expenses for ERISA plans seeking full recovery without binding plan administrators to specific choices. This statute differs from the Pennsylvania anti-subrogation law invalidated in FMC Corp. v. Holliday, which prohibited ERISA plans from recovering costs through subrogation. In contrast, the Alaska Legislature declined to eliminate subrogation rights, indicating that AS 09.55.548(b) does not exert undue pressure on ERISA plans to conform to a specific coverage structure. Consequently, AS 09.55.548(b) does not improperly connect with ERISA plans and remains unpreempted.
Furthermore, AS 09.55.548(b) is deemed unconstitutional under the Alaska Constitution's equal protection clause when applied to plaintiffs whose insurers possess a contractual reimbursement right. The Alaska Constitution guarantees equal treatment under the law, and its equal protection clause offers more robust protection than its federal counterpart. An as-applied constitutional challenge examines the specific facts of a case, contrasting with a facial challenge that questions the statute's constitutionality in all circumstances. The analysis begins by identifying the relevant classes that are treated differently by the statute.
Identification of relevant classes is followed by an assessment of whether the statute discriminates by treating similarly situated classes differently. A three-step sliding scale is employed to evaluate the statute: first, determining the weight of the constitutional interest affected; second, examining the purposes of the statute; and third, assessing the state’s interest in the means used to achieve its goals. The level of scrutiny applied in the second and third steps depends on the standard established in the first step.
Alaska Statute 09.55.548(b) creates two classifications among claimants based on collateral source compensation: those who receive such compensation and those who do not. Claimants with collateral source compensation are limited in recovery to amounts exceeding their compensation, while those without such compensation face no recovery limitations. Additionally, the statute distinguishes between collateral source compensation from federal programs that must seek subrogation and compensation from other sources. The former group is exempt from recovery limitations.
The classifications are subject to minimum scrutiny since the interests affected are financial. The statute's classifications will therefore be evaluated under the lowest level of scrutiny, as previously established in Reid v. Williams regarding the equal protection clause and AS 09.55.548(b).
Medical malpractice plaintiffs' rights to damages are categorized as economic interests, which receive limited protection under equal protection standards since they do not pertain to a protected class. The Alaska statute AS 09.55.548(b) imposes economic burdens and distinguishes between those who receive no collateral source compensation. The argument that individuals can freely choose health insurance plans is countered by the reality that many, like the majority of Alaskans, obtain insurance through their employers or government programs, leaving them with little choice regarding coverage terms.
Restrictions on damages in medical malpractice cases are viewed as infringing on economic interests, which are not considered "important" under equal protection analysis, leading to minimal scrutiny of legislative intent. The primary purpose of AS 09.55.548(b) is to limit malpractice awards and prevent double recoveries, aiming to control medical malpractice insurance costs and enhance healthcare availability. This legislative goal was previously upheld in the case of Reid, which recognized the statute's relationship to addressing issues specific to medical malpractice insurance. The legislative decision to treat medical malpractice claims differently from other tort cases is justified by the unique challenges associated with medical malpractice insurance and healthcare access.
AS 09.55.548(b) addresses the treatment of medical malpractice claimants concerning collateral source compensation. The underlying aim of the legislative framework was to manage malpractice insurance costs, without outright diminishing damage awards. The Commission explicitly rejected imposing strict limits on discovery periods to prevent hindering legitimate claims and opted against raising the burden of proof, recognizing the need to preserve the rights of injured parties. The Commission's findings indicated a desire to avoid arbitrary barriers that could obstruct access to legal recourse and aimed to tackle the issue of double recovery by ensuring that awards would not cover amounts already compensated by other sources.
Knolmayer presents a contrasting view, suggesting that the legislature intended to lower malpractice awards universally, shifting the burden of loss onto the injured parties. He argues that the decision to maintain collateral source subrogation rights diverged from the Commission's stance and reflects a legislative intent to prioritize the interests of collateral sources over those of the injured. However, the rationale behind this legislative choice is not straightforwardly interpreted as a means to safeguard negligent physicians at the cost of injured individuals.
Preserving collateral source subrogation rights enhances the accountability of negligent physicians for the full extent of harm caused. The legislation allows subrogated collateral sources to directly recover medical expenses from the tortfeasor, a significant shift from the Commission's draft that prohibited both the claimant and collateral source from recovering these costs. This change supports the legislative intent to prevent claimants from receiving awards for out-of-pocket losses that were compensated, thereby avoiding double recovery while allowing insurers to recoup these expenses from the tortfeasor.
Additionally, the legislature introduced a provision to safeguard claimants from the depletion of their insurance coverage due to reliance on collateral source payments. This provision indicates an intention to protect claimants, contradicting arguments that AS 09.55.548(b) was meant to transfer the burden of loss to them.
Contrasting AS 09.55.548(b) with AS 09.17.070, which alters the collateral source rule for other tort claims, does not strengthen Knolmayer’s position. AS 09.17.070, enacted ten years later, specifically addresses collateral sources without a subrogation right, suggesting that legislative intent behind AS 09.55.548(b) was not to limit damages due to subrogation. Subsequent amendments to AS 09.55.548 did not pertain to the collateral source provisions, further indicating that the purpose of AS 09.55.548(b) was to eliminate double recovery rather than to diminish malpractice damage awards by shifting the loss burden to injured individuals.
Statutory classifications under AS 09.55.548(b) do not have a fair and substantial relationship to the legitimate aim of preventing double recoveries in compensation. The legislation seeks to limit recovery for individuals who receive compensation from non-federal collateral sources, yet this limitation fails to align meaningfully with its intended purpose. Courts have established that less significant governmental objectives may justify a wider degree of over- or under-inclusiveness, provided the legislation is based on a legitimate public purpose and that classifications are reasonable and not arbitrary.
Previous cases, such as Reid and C.J. v. State, have upheld specific statutory caps on damages and modifications to the collateral source rule for medical malpractice claims, citing the unique challenges of malpractice insurance. However, AS 09.55.548(b) has a distinct focus on eliminating double recoveries rather than merely reducing damage awards, necessitating a careful evaluation of its means-to-ends relationship. The assumption that claimants receiving collateral source compensation would experience double recoveries is flawed, particularly as claimants, like McCollum, are typically required by their insurance contracts to reimburse their insurers from any recovery received. This common contractual obligation undermines the statute's foundational premise.
Legislative judgment recognizes that awards for noneconomic damages can be overestimated, leading to potential under-compensation for severely injured victims. The legislature was aware of subrogation issues in medical malpractice but may have incorrectly assumed that subrogated insurers could not recoup costs if the insured could not recover from the tortfeasor. An insurance contract that subrogates the insurer's rights does not allow recovery from a tortfeasor until the insured is fully compensated through insurance payments and any recovery from the tortfeasor, unless specified otherwise to override the "make whole" rule.
In most cases, allowing claimants to recover medical expenses covered by insurers does not result in double recovery, as those amounts directly go to the insurer. A medical malpractice claimant could opt to seek the total medical costs from the tortfeasor instead of the insurer to avoid potential deductions caused by statute. However, this strategy's risks do not affect the statute's relevance to its intended purpose.
Insurance contracts typically establish rights to recover through subrogation, where insurers assert the insured's rights against the tortfeasor, and through reimbursement, where insurers seek repayment from the insured. Historical context shows that New Jersey's insurance regulations evolved to allow subrogation and reimbursement provisions in health insurance policies. Courts have upheld insurers' rights to recover medical expenses through reimbursement clauses when subrogation is not viable.
Insurers have increasingly sought to recover payments made to insured clients through reimbursement mechanisms. This trend diminishes the likelihood of double recovery for malpractice claimants who receive compensation from non-federal collateral sources, similar to those covered by Medicaid, which mandates subrogation. Although not all collateral source compensations require repayment—such as those from family or charitable sources—most health plans typically include reimbursement rights. Consequently, the statute's differential treatment of medical malpractice claimants based on collateral source compensation does not fairly relate to preventing double recovery. Specifically, AS 09.55.548(b) was found to violate Alaska’s equal protection clause when applied to claimants with reimbursement rights from collateral sources. The court vacated the superior court's April 30, 2020 order and remanded for further proceedings, leaving the determination of claimant eligibility for AS 09.55.548(b) to the superior court.
