The Texas Supreme Court’s recent opinion in In re K & L Auto Crushers and Thomas Gothard¹ extended its decision in In re N. Cypress Med. Ctr. Operating Co., 559 S.W.3d 128, 129 (Tex. 2018) (orig. proceeding) to include the negotiated rates medical providers charge to private insurers and public payors in personal injury cases. This new opinion, alongside the Court’s recent opinion in In re Allstate Indemnity Co., form a framework that personal injury attorneys will need to understand as they work through discovery moving forward.

In In re North Cypress Medical Center, an emergency department hospital patient lacking health insurance sought a declaratory judgment that the hospital’s billed charges (chargemaster rates) were unreasonable and that the hospital’s lien exceeded a reasonable and regular rate. The Texas Supreme Court noted that few patients ever pay a hospital’s full charges and hospitals generally expect to recover far less than they actually charge. The Court noted the “arbitrary nature” of chargemaster prices and how such rates have “lost any direct connection to costs or to the amount the hospital actually expect[s] to receive in exchange for its goods and services.” The Court held that the amount that hospitals accept as payment from patients covered by private insurance and government benefits like Medicare and Medicaid are relevant to whether billed charges are reasonable (and thus discoverable). 

In the years since North Cypress, parties have debated the scope and application of the decision. K & L Auto Crushers allowed the Supreme Court to address the issue.

Background of Underlying Case

The plaintiff in a motor vehicle collision sought to recover his medical expenses, including surgeries to the cervical spine and shoulder. The plaintiff’s medical providers charged him $1.2 million for the surgeries and treatment. The plaintiff did not pay for the treatment or use insurance, but instead relied on letters of protection sent by his attorneys. In discovery, the defendant sent broad subpoenas to plaintiff’s healthcare providers. After the initial subpoenas were quashed, the defendant moved to reconsider and narrowed its requests to seek production only of documents related to (1) the amounts the providers charged insurance companies, federal insurance programs, and in-network healthcare providers for the services, materials, devices, and equipment billed to the plaintiff as of the date of the plaintiff’s treatment, (2) the amounts the providers paid for the devices and equipment billed to the plaintiff, and (3) the providers’ chargemaster (full) rates for the devices and equipment billed to the plaintiff and how the providers determined those rates. The defendant agreed to enter into a protective order if necessary to secure the information and asserted that its requests were now targeted to the specific medical devices/services at issue, did not implicate any concerns about confidentiality of other patient records, and fell squarely within the discovery authorized by the Supreme Court’s decision in North Cypress. The trial court denied the motion for reconsideration without explanation and the defendant sought a writ of mandamus.

The Supreme Court’s analysis focused on four objections to the defendant’s discovery requests before determining the mandamus relief was appropriate in this case. Each of those objections is summarized below.

Relevance

In K & L Auto Crushers, the plaintiff tried to distinguish North Cypress because it involved a patient’s challenge to a hospital’s ability to enforce a lien securing medical charges, while K & L Auto Crushers involved an injured party’s ability to recover his medical charges from a tortfeasor. The plaintiff’s medical providers argued that the plaintiff’s “ability to recover his medical expenses from K & L Auto does not depend on whether those expenses were reasonable.” Instead, the providers argued that the plaintiff could recover whatever amount was “actually paid or incurred” by him or on his behalf.

The Supreme Court disagreed. The Court noted that while the recoverable limit of medical expenses is limited to amounts actually paid or incurred, such amounts also must be reasonable. Proof of the amounts charged on their own are not evidence of reasonableness. The Court found “nothing in the record that legally obligates [the plaintiff] to pay the full amount the providers charged if the amount is unreasonable.” But even if a plaintiff was legally obligated to pay an unreasonable amount for medical services, the defendant’s liability “would still be limited to a reasonable amount.” The Court wrote: “Although the reasonableness limitation may in some cases leave a claimant ‘undercompensated,’ it ensures that the tortfeasor is held responsible only for losses naturally resulting from its wrongful act.”

The Court applied its North Cypress holding to personal injury actions:

[W]hile certainly “not dispositive,” the negotiated rates the providers charged to private insurers and public payors for the medical services and devices provided to [the plaintiff], and the costs the providers incurred to provide those services and devices, are “at least relevant” to whether the chargemaster rates the providers billed to [the plaintiff] for the same services and devices are reasonable.

Even though such information is discoverable, proportionality still controls. However, at the trial court, the defendant stated it only sought the information discoverable under North Cypress, so the Court held that the defendant’s request was sufficiently narrowed to be relevant.

Overbreadth

The Supreme Court noted that although the defendant’s subpoenas initially required the plaintiff’s medical providers to produce a wide array of information regarding billing practices and rates related to procedures performed over a ten-year time period. After those subpoenas were quashed, the defendant “expressly focused its requests on information regarding the negotiated rates and costs for the ‘same or similar services’ and devices [the plaintiff] was billed for, as of the dates [he] was billed for them.” The defendant stated on the record that it sought only that information that was permitted in North Cypress. This was sufficiently narrow and the Court held that the trial court abused its discretion in denying the defendant’s motion for reconsideration on overbroad grounds.

Undue Burden & Harassment

The plaintiff and plaintiff’s medical providers argued that the defendant’s requests were unduly burdensome and harassing. However, the “providers made no effort to establish the burdens they would bear to respond to the substantially narrowed requests.” The Court gave weight to promoting the resolution of disputes based on “what the facts reveal” rather than on “what facts are concealed” and noted that discovery allows parties to compel non-parties to produce relevant information.

The Court rebutted the idea that the plaintiff’s medical providers’ non-party status would lead to undue burden by addressing the impact of letters of protection:

Here, 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. Unlike most non-parties, the providers who treated [the plaintiff] pursuant to letters of protection invested themselves in the outcome of this case and the amount of damages recovered, and because of that, they forfeit a degree of the protection our rules afford disinterested third parties who are subjected to third-party discovery.

Going further, the Court agreed that the providers’ “choice to provide treatment based on letters of protection makes them subject to an ‘intrusion on their time by repeated depositions on written questions and subpoenas.’” This is because “the rates healthcare providers charge to private insurers and public payors and their costs for providing services to a patient constitute relevant facts and data.”

Regarding proportionality, the Court stated that the higher the amount of medical specials damages at issue, the “more proportional” the discovery requests are. Even when a defendant does not concede liability, the reasonableness of the claimed medical expenses is central to the defense such that depriving the defendant of key information relevant to that issue places the defendant at a significant disadvantage. The discovery at issue allows the defendant “to litigate the issue of reasonableness on level ground.” Discovery allows a defendant to rebut the alleged damages at trial by offering concrete evidence—rather than speculative evidence—of the amounts the providers usually charge and accept as payment and the cost to providers for the services and devices provided to the plaintiff. In turn, the plaintiff can explain why such evidence does not establish what is reasonable and why the actual billed amounts are reasonable.

Confidentiality & Trade Secrets Concerns can be Managed with a Protective Order

The plaintiff and his providers also objected on confidentiality and trade secrets grounds. To offset these concerns, the defendant agreed that the trial court should enter a protective order and assured the trial court that it was not seeking any “private” or legally protected patient information. However, the trial court denied the discovery without assessing a protective order’s applicability, which was an abuse of discretion. Defendants seeking similar discovery from medical providers should consider suggesting a protective order so as to avoid dissemination of potential trade secret information.

Availability of Mandamus Relief

The Court noted that reasonableness of medical expense charges goes to the heart of a personal injury case’s defense: “if the charges are unreasonable, they are not recoverable.” The Court agreed that the denial of narrowed discovery requests severely compromise the defense’s ability to challenge the reasonableness of the providers’ charges. The requested information could contradict a plaintiff’s own evidence of reasonableness, whereas without such discovery, the defense would be limited to “only present[ing] counter-affidavits generally arguing the unreasonableness of the expenses.” Mandamus was appropriate in this case because the missing third party discovery could not be made part of the appellate record or challenged on appeal.

Together with In re Allstate, the Court this term has now opined on two key areas of personal injury practice that have divided the personal injury bar. These opinions should help to streamline discovery disputes now that the state’s highest court has weighed in, allowing the parties to focus on liability issues and the merits of each case. Both Allstate and K & L Auto Crushers provide important blueprints that attorneys will want to follow as different appellate courts begin to evaluate and determine the boundaries of each.

Endnotes