Skip to content
Jun 14, 2021

In re K & L Auto Crushers, LLC: An Update on North Cypress and Discovery of Medical Billing Information

By: John Faubion

This article updates Cooper & Scully’s March 16, 2020 article, “Western District of Texas Courts Holding that Discovery Permitted by North Cypress Medical Center Does Not Apply in Personal Injury Cases,” authored by Cory Sutker and Klayton Hiland.  In re North Cypress Medical Center concerned the discovery of a hospital’s insurance reimbursement rates and private contracts with third-party medical insurers by a patient who was treated in the emergency department without insurance coverage. 

In North Cypress, a hospital patient claimed the hospital’s full-billed charges for his care were unreasonable and that the corresponding hospital lien was invalid because such charges exceeded the reasonable and regular rate charged for the care provided.  In re N. Cypress Med. Ctr. Operating Co., Ltd., 559 S.W.3d 128, 129 (Tex. 2018).  The Texas Supreme Court held that information relating to reimbursement rates, including insurance contracts, was discoverable because the amount a hospital accepts for goods or service through private insurance or government programs (Medicare or Medicaid) is relevant to determine the reasonableness of full-billed medical expenses and any corresponding lien.  Id.  While North Cypress was a lien-related action, the opinion prompted litigants in personal injury cases to seek discovery of information relating to reimbursement rates as a vehicle to challenge the reasonableness of past medical expenses.

Following North Cypress, some ambiguity existed regarding the scope of the Texas Supreme Court’s holding and its potential application in personal injury suits.  Federal cases in the Western District of Texas appeared to limit the scope of North Cypress to hospital lien cases.  See In re Interventional Pain Associates, P.A.  CV 5:20-MC-00934-OLG, 2021 WL 456622 (W.D. Tex. Jan. 4, 2021) (concluding that a non-party medical provider’s reimbursement rates were not discoverable in a personal injury case); see also Perez v. Boecken, No. SA-19-CV-00375-XR, 2019 WL 5080392, at *4 (W.D. Tex. Oct. 10, 2019), aff’d, No. SA-19-CV-00375-XR, 2020 WL 96907 (W.D. Tex. Jan. 8, 2020); Rodriguez v. Bryan Truck Lin Inc., No. SA-17-CV-1103-XR, 2018 WL 7348032, at *3 (W.D. Tex. Sept. 18, 2018).  Texas appellate decisions interpreting North Cypress were limited.  See In re Memorial Hermann Health System.  607 S.W.3d 913 (Tex. App.—Houston [14th Dist.] 2020, no pet.) (permitting limited discovery of medical billing information from hospital when the hospital intervened in personal injury action to enforce lien rights); see also In re Muller, 612 S.W.3d 701, 705 (Tex. App.—Amarillo 2020, no pet.) (permitting some discovery of medical billing practices from provider in action to recover unpaid medical expenses from patient).

In an opinion delivered on May 28, 2021, the Texas Supreme Court eliminated any ambiguity and expressly extended its holding in North Cypress to permit discovery of certain non-party medical billing information in personal injury cases.  See in re K & L Auto Crushers, LLC, No. 19-1022, 2021 WL 2172535 (Tex. May 28, 2021) .

The K & L Auto decision concerned a personal-injury action against a truck driver and his employer after a motor-vehicle collision.  The accident occurred when both vehicles were stopped side-by-side in adjacent lanes that both permitted right turns.  Id. at *1.  The truck proceeded to turn from the left lane, and his trailer caught the rear driver side door of the plaintiff’s vehicle, dragging it a short distance, scraping and tearing the metal on the side of the vehicle.   Id.  The parties exchanged information and drove away without reporting any injuries.  Four days after the accident, the plaintiff sought medical treatment; five months later, the plaintiff underwent cervical spine and shoulder surgeries and was charged approximately $1.2 million for the medical care.  Id.

Section 18.001 medical-expense affidavits and counter-affidavits were served by plaintiffs and defendants.  One of the defendants, K & L Auto, also served subpoenas on the plaintiff’s medical providers requesting information relating to billing practices and rates.  Id. at *2.  Three of the non-party providers files motions to quash the subpoenas, asserting the requests “were overbroad, unduly burdensome and harassing, and not reasonably calculated to lead to the discovery of admissible evidence, and that they sought information that was irrelevant, inadmissible, confidential, proprietary, and protected as trade secrets.”  Id.  K & L Auto moved to compel the discovery and the trial court held a hearing on the matter where it sustained the providers’ objections and quashed the subpoenas.  Id.  K & L Auto later moved for partial reconsideration of the trial court’s order quashing the subpoenas where it abandoned many of the broader requests.  Id. at *2-3.  The Court noted that K & L stipulated that it was “willing to enter into any reasonable and necessary protective orders with the medical providers to address concerns about confidentiality of their contractual agreements with third-party payers and insurers” and that the limited requests “were now ‘targeted to the specific medical devices/services at issue, d[id] not implicate any concerns about confidentiality of other patient records, and f[ell] squarely within the discovery authorized by’ [the Court’s decision] in  North Cypress.”  Id. at *3.  The trial court denied the motion for reconsideration and the court of appeals denied K & L Auto’s petition for writ of mandamus.

The Texas Supreme Court granted mandamus relief and held that the trial court abused its discretion by denying the requested discovery, holding that “the information we found relevant to the reasonableness of the provider’s rates in North Cypress is equally relevant here.”  Id. at *1.  In the Supreme Court, plaintiffs argued that the information sought through K & L Auto’s subpoenas was not relevant, and that the requests were overbroad, unduly burdensome, harassing, and sought confidential information protected as trade secrets.  Id. at *4.  The Court considered each objection and determined the information was discoverable.

            In reaching its decision, the Court stated the following:

The reasonableness of the claimant’s medical expenses is as germane in a personal-injury case as it is in a suit to challenge the validity of a medical lien. Our relevance holdings in North Cypress thus apply equally here: while certainly “not dispositive,” the negotiated rates the providers charged to private insurers and public payors for the medical services and devices provided to Walker, 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 Walker for the same services and devices are reasonable.

The Court also relied on its decision in North Cypress to determine the information requested by K & L Auto was not overbroad.  K & L wisely limited its requests to information specifically determined in North Cypress to be discoverable—“negotiated rates and costs for the ‘same or similar services’ and devices [plaintiff] was billed for, as of the dates [plaintiff] was billed for them.”  Id. at *8.  The providers submitted affidavits supporting their objection that responding to the requests would be burdensome and expensive, but the Supreme Court noted that this evidence was conclusory in describing the estimates of time, effort, and expenses the providers would incur to respond to K & L Auto’s requests.  Moreover, the Court noted its typical sensitivity to non-party status, but found in this case that the providers’ interest in the litigation presented a unique situation, stating:

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 [plaintiff’s] claims. Unlike most non-parties, the providers who treated [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.

Id. at *9.  Consequently, the providers’ objections based on burden were overruled.  The providers also objected to the subpoenas on the basis of confidentiality and trade secret protection, asserting that reimbursement rates contained in health insurance agreements were privileged trade secrets and that disclosure of such information would compromise the providers’ ability to conduct business with health insurers.  Id. at *11.  K & L Auto agreed the court should enter a protective order and assured the court it was not seeking confidential patient information, and the Supreme Court found there was no reason an appropriate protective order could not address confidentiality concerns.  Id.

In addressing each of the providers’ objections to the K & L Auto subpoenas and holding that non-party medical billing information is discoverable in the personal-injury context, the Texas Supreme Court clarified and expended the scope of the North Cypress decision through its holding in K & L Auto Crushers.  Any party engaged in discovery of medical billing information to challenge or support the reasonableness of medical expenses should consider the impact of North Cypress and K & L Auto Crushers on the requests at issue in their case.