It’s Time to Revisit the Reasonable Value of Medical Care – Part I
Thursday, May 13, 2021
by: Jean Homan

Section: Spring 2021

Jean Homan has been a Deputy City Attorney with the City of Tacoma, handling tort defense, for twenty-four years. Working for a self-insured entity, City of Tacoma litigators handle all tort matters for the City, in all courts and all phases of litigation. Jean’s primary client is the Tacoma Police Department, its command staff and its officers, and her practice focuses heavily on civil rights claims. Additionally, Jean has litigated personal injury, wrongful death and unique municipal claims, such as roadway liability and permitting claims. Over the course of her career, Jean has litigated cases in state and federal court, and has appeared and argued before the Washington State Court of Appeals, the Washington Supreme Court and the Ninth Circuit Court of Appeals. For the past twelve years, Jean has overseen the City’s tort litigation for the City, in addition to her own caseload, and has managed the City’s claim for damages process. Additionally, for the past two years, Jean has served on the Washington Defense Trial Lawyer’s Board of Trustees.
Why should the plaintiff be able to claim, as compensatory damages, hundreds of thousands of dollars in bills that were never actually incurred?
For tort defense attorneys, the scenario is hauntingly familiar…and immensely frustrating.  The plaintiff in your case is claiming hundreds of thousands of dollars in medical specials, most of which are the result of hospital care, even though the plaintiff’s insurance paid only a fraction of the gross billed charges and the hospital wrote the balance off.  And yet at trial, your plaintiff will be able to blackboard as special damages the gross billed charges for their medical care. Why should the plaintiff be able to claim, as compensatory damages, hundreds of thousands of dollars in bills that were never actually incurred?  The short answer is…the plaintiff should not be able to do so and it is long past time to change that practice.

Because of the collateral source rule in Washington, the plaintiffs’ attorneys - and the courts - have become very accustomed to viewing the gross billed charges as the only measure of the reasonable value for the services provided.  The reality is this… the only party who ever pays the gross billed charges for hospital care is the unsuccessful tort defendant.

In order to get the courts to start viewing this issue differently, we – the defense bar – have to start treating the issue differently1.  This article identifies a different approach to this issue, a factual approach that we – the defense bar – have been overlooking.
Washington’s Law on Reasonable Value of Medical Care
At trial, plaintiff bears the burden of proving his/her economic damages, defined as “objectively verifiable monetary losses[.]” RCW 4.56.250(1)(a). “A plaintiff in a negligence case may recover only the reasonable value of medical services received, not the total value of all bills paid.”  Patterson v. Horton, 84 Wn. App. 531, 543, 929 P.2d 1125 (1997).  See also Hayes v. Wieber Enterprises, Inc., 105 Wn. App. 611, 616, 20 P.3d 496 (2001)(“…the amount billed or paid is not itself determinative.  The question is whether the sums requested for medical services are reasonable.” (emphasis added)); WPI 30.07.01 (allowing recovery of “[t]he reasonable value of necessary medical care, treatment, and services received to the present time”).   
In carrying this burden, plaintiff “cannot rely solely on the medical records and bills.”  (emphasis added)  Patterson, 84 Wn. App. at 543. “Medical records and bills are relevant to prove past medical expenses only if supported by additional evidence that the treatment and bills were both necessary and reasonable.” Id. “Proof of [medical expenses] need not be unreasonably exacting and may come from any witness who evidences sufficient knowledge and experience respecting the type of service rendered and the reasonable value thereof.” (emphasis added) Kennedy v. Monroe, 15 Wn. App. 39, 49, 547 P.2d 899 (1976).
Many plaintiffs rely on the Hayes decision to support the proposition that the amount accepted is not relevant to the issue of reasonable value, because the Hayes court held “[t]he fact that the doctor accepted the first party insurance carrier’s limit for his services does not tend to prove his charge for these services were unreasonable.”  Hayes, 105 Wn. App. at 616.  Plaintiffs’ construction of Hayes, however, ignores the context of this statement.  The Hayes court was simply saying that where a defendant has not even challenged the reasonableness of the gross billed amount, the doctor’s acceptance of the contractually agreed amount alone does not prove that the gross billed amount was unreasonable. In essence, the Hayes court held is that some other evidence of reasonable value, beyond simply the amount accepted, is needed to establish that the amount billed was unreasonable.  This is a narrow ruling and does not stand for the proposition that the gross amount billed is the only valid measure of the reasonable value of medical services.  
A plaintiff may be entitled to present evidence to the jury of the amount billed for hospital care, but no Washington appellate court has held that plaintiff is entitled to recover, as compensatory damages, the total amount billed by the hospital.  To the contrary, as outlined herein, hospitals’ billing and collections practices unequivocally establish that the gross billed amount is presumptively unreasonable.

Washington’s Collateral Source Rule

“Under the collateral source rule, payments, the origin of which is independent of the tort-feasor, received by a plaintiff because of injuries will not be considered to reduce the damages otherwise recoverable.” Ciminski v. Sci Corp., 90 Wn.2d 802, 805, 585 P.2d 1182 (1978). 

“The policy behind the rule is that the wrongdoer should not benefit from collateral payments made to the person he has wronged.” In other words, “[t]he very essence of the collateral source rule requires exclusion of evidence of other money received by the claimant so the fact finder will not infer the  claimant is receiving a windfall and nullify the defendant’s responsibility.”

(emphasis added) Peterson-Gonzales v. Garcia, 120 Wn. App. 624, 637, 86 P.3d 210, rev. denied, 152 Wn.2d 1027 (2004).  

Plaintiffs rely on, and the courts accept, the collateral source rule as a basis for concluding that the only way to determine the reasonable value of medical care is to use the gross billed charges2.  If the jury cannot consider evidence of what was actually paid for the services rendered to plaintiff3, only the billed amount is left…right?  Fortunately, that is not the case.  

“[T]he collateral source rule is of necessity triggered by evidence related to the payment made to the injured party.”  (emphasis added) Peterson-Gonzales, 120 Wn. App. at 636.  The premise of the collateral source rule is that injured parties should be able to recover compensatory damages from tort-feasors without regard to payments received from other sources.  Johnson v. Weyerhaeuser Co., 134 Wn.2d 795, 798, 953 P.2d 800 (1998).  "The very essence of the collateral source rule requires exclusion of evidence of other money received by the claimant so the fact finder will not infer the claimant is receiving a windfall and nullify the defendant's responsibility."  Id. at 803.  Thus, under the rule, if a plaintiff is injured by the tortious conduct of the defendant, incurs hospital charges of $1000 and the plaintiff’s insurance company pays the $1000 hospital bill, evidence that the insurance company paid the hospital bill is not admissible.  This is because a jury could conclude that since the bill has already been paid, the plaintiff should not be awarded the $1,000 as compensatory damages.  In such a situation, if the defendant is found liable, he/she should pay the $1,000 because that amount represents the damages incurred by plaintiff as a result of the tortious conduct.  But that is not the situation presented by tort plaintiffs today.  Tort plaintiffs today are not seeking recovery of the actual damages incurred.  Instead, they seek recovery for amounts that were not paid, for damages that were not incurred, and that could never be incurred under prevailing hospital practices.

The Reality of Hospitals’ Billing and Collection Practices

All hospitals maintain a charge master rate sheet, a lengthy and confusing compilation of gross billed charges for all services, medications and devices provided the hospital, and it is the source of the gross billed charges that plaintiffs claim as their measure of damages.  As recognized by both healthcare economists and lawyers, for hospitals, the “charge master or list prices are not fair or reasonable.  They are grossly inflated because they are set to be discounted rather than paid.” (emphasis added) George A. Nation III, Determining the Fair and Reasonable Value of Medical Services: The Affordable Care Act, Government Insurers, Private Insurers and Uninsured Patients, Vol. 65:2 Baylor Law Review 425, 429 (2013)4.  Because of this, all hospitals adopt collection policies intended to offset the extraordinarily inflated gross billed charges such that what the patient pays represents the true and reasonable value the care.  
The most helpful example of this for the defendants’ purposes can be found in the policies for uninsured, or “self-pay” patients5
CR 30(b)(6) depositions of several major hospital providers6 established the following facts, facts which negate any inference that the gross billed charges represent the reasonable value of hospital care:
No patient ever pays the gross billed charges.
If the patient has government insurance (Medicare and Medicaid), the hospital is obligated to accept the amount that the government has deemed the reimbursable amount for that service.
If the patient has private insurance, the hospital will accept – as payment in full – the negotiated contract amount for that service.
If the patient has no insurance (a cash or “self-pay” patient), the hospital will immediately discount the gross billed charges by 60%.
1It is important to note that this article outlines a different approach to address the reasonable value of hospital care.  This methodology will not work to establish the reasonable value of providers’ charges, since providers’ billing and collections practices are very different from the hospitals’ billing and collection practices.

2Under Washington law, if there has to be windfall, the plaintiff gets the benefit of that windfall.  Contrary to the position most often taken by plaintiffs’ attorneys, however, Washington law (including the collateral source rule) does not guarantee a windfall and is not intended to artificially manufacture an unnecessary windfall.  The true measure of plaintiff’s special damages for hospital care is the amount paid for those services, as the amount paid is the objectively verifiable monetary loss – the losses actually incurred.  This is why the Washington Supreme Court should adopt the approach taken by the California Supreme Court in Howell v. Hamilton Meats & Provisions, Inc., 257 P.3d 1130, 129 Cal. Rptr. 3d 325, 52 Cal.4th 541 (2011).  But until the Washington Supreme Court adopts the approach taken by California, relying on a hospital’s actual billing and collections practices for all patients (especially uninsured patients) is the next best thing.

3The jury in any case involving a claim of bodily injury will be asked to determine, as a measure of plaintiffs’ damages, “[t]he reasonable value of necessary medical care, treatment, and services received to the present time.” (emphasis added) WPI 30.07.01. As noted recently by the Supreme Court, “BLACK’S equates ‘value’ to ‘price.’”  Money Mailer LLC v. Brewer, 194 Wn.2d 111, 120, 449 P.3d 258 (2019)(citing BLACK’S LAW DICTIONARY 1864 (11th ed. 2019)). Similarly, Merriam-Webster defines “value” as “the monetary worth of something.”  MERRIAM-WEBSTER.COM, 2020. (accessed September 20, 2020).  

4  The grossly inflated charges in the charge master rate sheet give the hospitals room to negotiate rates with commercial insurers that allow the hospitals to recover their operating expenses, capital expenses and show a reasonable profit.  In general, most hospitals write off, in discounts and allowances, approximately 70% to 75% of the gross billed charges.

5In Beltran-Serrano v. City of Tacoma, No. 51317-0-II, 2019 WL 3938570 (Wash. Ct. App. Aug. 20, 2019), Division II recently addressed this issue, albeit somewhat indirectly.  In her dissenting opinion, Judge Lisa Worwick expressed concerns about using any measure of reasonableness other than the gross billed charges out of concern for the hypothetical uninsured patient who would be forced to pay the gross billed charges. This concern is understandable and therefore, it is critical that evidence concerning the hospital’s actual billing and collection practices is included in the record to remove any concern that the defendant’s theory of reasonableness may leave some hypothetical plaintiff without full compensation.     
6The discovery discussed herein was done with CHI Franciscan and Multicare Healthcare Systems, but just a little digging into other hospital providers’ websites reveals that they all have similar policies, and all automatically discount the gross billed charges for self-pay patients to some degree.  For example, UW Medicine automatically applies a 30% discount to the gross billed charges for all self-pay patients. Additionally, discounts, above the 30%, are available under discrete circumstances. UW Medicine’s policy can be found at