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Mar 16, 2020

Western District of Texas Courts Holding that Discovery Permitted by North Cypress Medical Center Does Not Apply in Personal Injury Cases

By: Cory Sutker and Klayton Hiland

In In re North Cypress Medical Center, a patient who had been treated in the hospital’s emergency department and who lacked health insurance brought a declaratory judgment action against the hospital based on the contention that the hospital’s full-billed charges (known as charge master rates) were unreasonable and that a corresponding lien was invalid to the extent it exceeded a reasonable and regular rate for the care provided. In re N. Cypress Med. Ctr. Operating Co., Ltd., 559 S.W.3d 128, 129 (Tex. 2018), reh’g denied (Nov. 16, 2018).  In the opinion, the Texas Supreme Court noted that few patients today ever pay a hospital’s full charges and hospitals generally expect to recover far less than they officially “charge.” Id. at 136. The opinion also cites to commentary that suggests that full-billed charges 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.” Id. at 132. Given this, the Court held that the amount that hospitals accept as payment from patients covered by private insurance and government benefits (i.e. Medicare and Medicaid) are relevant to whether the full-billed charges are reasonable. Id. at 137. The Court further held that information related to reimbursement rates—including insurance contracts—was discoverable. Id.

Though North Cypress was a lien-related action, the opinion has since served as a foundation for a new strategy for some in the defense bar for attacking the amount of past medical expenses in personal injury cases.  As part of this strategy, defendants are sending depositions on written questions to health care providers requesting insurance contracts and/or pricing information (reimbursement rates) for each payor system, including major insurers, Medicare and Medicaid.  The goal is to use such information to demonstrate that the medical expenses sought by the plaintiff (which impact the defendant’s ultimate exposure) are too high compared to the average reimbursement realized by a health care provider for the service provided and, thus, unreasonable. While this emerging practice has mostly been limited to attacking the amount of past medical expenses, the same principles could arguably apply in defending against alleged future medical expenses set out in life care plans because such plans generally base their costs on the amount billed to the patient and not the amount that the provider “actually expects to receive.”

That said, the Western District of Texas has recently issued opinions which appear to limit the reach of North Cypress in the personal injury context.  In Rodriguez v. Bryan Truck Line, Inc., the Western District held that that the North Cypress court’s reasonableness analysis centered on the Texas’s hospital-lien statute and should not apply in personal injury cases where the issue is how to calculate damages for the plaintiff’s future medical care. SA-17-CV-1103-XR, 2018 WL 7348032, at *3 (W.D. Tex. Sept. 18, 2018).  In support of this opinion, the Western District explained that extending North Cypress would set a troubling precedent of infringement on non-party medical providers’ “proprietary information regarding their contractual terms with non-party insurers[.]” Id. Moreover, the Western District distinguished between North Cypress, where the dispute was between the medical provider and the patient treated, and cases “where there was a dispute between the plaintiff who the providers treated and the alleged tortfeasor regarding how to calculate damages for the plaintiff’s future medical care.” Id.

The Western District confirmed this position in Perez v. Boecken, another personal injury action, by concluding that a non-party medical provider’s insurance reimbursement rates are not relevant to determine damages in a personal injury case. SA-19-CV-00375-XR, 2019 WL 5080392, at *4 (W.D. Tex. Oct. 10, 2019), aff’d, SA-19-CV-00375-XR, 2020 WL 96907 (W.D. Tex. Jan. 8, 2020). Extrapolating from Texas’ collateral-source rule, which prevents a defendant from “offsetting his liability by benefits received by the plaintiff from a third party,” the Western District explained: “What Plaintiff’s medical provider charges insured patients for the procedures Plaintiff received has no bearing on what Plaintiff owes to his medical provider. As that information is not relevant, the tortfeasor defendant should not be allowed to discover it from Plaintiff’s non-party medical providers.” Id. (internal quotation omitted); see also Lackey v. Dement, SA-17-CV-00514-FB, 2019 WL 3238896, at *3 (W.D. Tex. July 18, 2019), reconsideration denied, SA-17-CV-00514-FB, 2020 WL 110751 (W.D. Tex. Jan. 9, 2020). Moreover, the Perez court determined that the reimbursement rates were subject to protection from discovery under the Texas Uniform Trade Secrets Act. Id. at *4. Finally, the Western District determined that such discovery was not proportional to the needs of the case because the medical provider was not a party and much of the discovery sought could be acquired through publicly available sources. Id.

These precedents should be read with caution. While no Texas court has extended North Cypress to permit discovery of non-party medical providers’ contractual reimbursement information in the personal injury context, neither has a Texas court applied the reasoning of Perez or Rodriguez to deny such discovery. The Western District opinions remain a persuasive—not mandatory—authority for Texas courts, but the reasoning behind those decisions appears to be easily transferable.