In a decision of significance in medical malpractice cases, a Vermont superior court has just held that a medical malpractice plaintiff cannot recover from the defendant hospital more in medical specials damages than the amount the hospital received in payment for treating the plaintiff. See DeGraff Spear, et al. v. The University of Vermont Medical Center et al., Docket 239-3-18 Cncv (Toor, J) (May 12, 2020).
For years a battle has been raging in the United States over whether a personal injury plaintiff can recover from the tortfeasor, by way of medical specials, (1) the “face amount” of her medical bills for accident-related treatment – which amount typically includes a portion that the healthcare provider has “written off” and agreed not to pursue from the patient/plaintiff) – or (2) only the lesser amount that the healthcare provider, after applying its write-off, accepted in full satisfaction of those bills from an insurance company or other third-party payor, or government benefit (e.g., Medicaid or Medicare), i.e., the “amount actually paid.” The answer depends upon the jurisdiction, and comprises a spectrum. On one end, some states hold either by judicial ruling or by statute that a plaintiff cannot recover more than her healthcare provider(s) accepted in full satisfaction of the bills. See, e.g., Stayton v. Delaware Health Corp., 117 A.3d 521, 530 (De. 2015) (common law ruling that the amount paid by Medicare or Medicaid is dispositive of the reasonable value of healthcare services, and collateral source rule does not require otherwise); Howell v. Hamilton Meats and Provisions, Inc., 52 Cal.4th 541 (2011) (same); Hanif v. Housing Authority, 200 Cal.App.3d 635 (1988) (same); Iowa Code §§ 622.4, 668.14A (new statute limiting plaintiff’s recover to amount actually paid); Tex. Civ. Prac. & Rem. Code § 41.0105; Haygood v. Garza de Escabedo, 356 S.W.3d 390 (Tex. 2011) (confirming that Texas statute limits plaintiff’s recovery to only the discounted amount, and limits evidence of medical expenses to the amount paid). On the other end, some states hold that a plaintiff can recover the full “face amount” of her bills and a defendant cannot introduce evidence of the “amount actually paid.” See Lopez v. Safeway Stores, Inc., 129 P.3d 487 (Ariz.Ct.App. 2006). In between, some states hold that a plaintiff can recover the “reasonable value” of her accident-related medical treatment, and it is up to the jury to determine that amount and that the jury may consider both the “face amount” and the “amount actually paid.” See Robinson v. Bates, 112 Ohio St. 3d 17, 857 N.E.2d 1195 (2006) (in Ohio, “[b]oth the original medical bill rendered and the amount accepted as full payment are admissible to prove the reasonableness and necessity of charges rendered for medical and hospital care”); see also Law v. Griffith, 457 Mass. 349, 930 N.E.2d 126 (Mass. 2010) (plaintiff may introduce bills showing “face amount” as evidence of reasonable value and defendant may introduce contrary evidence of reasonable value but may not introduce “amount actually paid” as such evidence is contrary to collateral source rule). Jurisdictions that have allowed a plaintiff to recover the full “face amount” of the bills and refuse to allow the defendant to introduce evidence of the “amount actually paid” typically do so – wrongly, in our view – under the “collateral source rule.” The collateral source rule holds that a tortfeasor cannot benefit, i.e., limit its damages exposure, from the fact that a third-party payor (e.g., insurance) paid the plaintiff’s medical bills. Otherwise, the theory goes, the tortfeasor avoids some amount of liability by the fortuity that the plaintiff was insured. Lopez, supra.
The Vermont Supreme Court has not addressed the “face amount” vs. “amount actually paid” issue, but does follow the collateral source rule, and most Vermont superior judges who have addressed this issue have cited that rule in refusing to allow the defendant to limit a plaintiff’s recovery of medical specials to the amount actually paid for medical services.
The Medical Malpractice Context
But what about the situation where (a) the defendant and (b) the healthcare provider that treated the plaintiff and whose bills are at issue are one and the same? This is exactly the situation in the typical medical malpractice case. A Vermont superior court addressed the question in DeGraff Spear, ruling in the defendant hospital’s favor.
The DeGraff Spear Case
It’s important to understand the basic facts. The plaintiff was treated at the University of Vermont Medical Center hospital (UVMMC) and experienced complications. She subsequently was treated extensively at another hospital. At both facilities she incurred substantial medical bills. The bills from both UVMMC and the subsequent hospital were paid by Medicare and her husband’s military health insurance, for a fraction of the face amount of the bills and in full satisfaction of those bills, so the plaintiff owed the two hospitals nothing. She sued UVMMC for malpractice, alleging that her lengthy treatment at UVMMC and at the subsequent hospital was due to UVMMC’s negligence. She sought to recover the full face amount of the bills issued from both UVMMC and the subsequent hospital. UVMMC moved to limit the plaintiff’s recovery to the amount paid by Medicare and the military insurer for the bills from both hospitals.
The Court’s Analysis
As to the bills from the second hospital, the court predictably followed the conventional analysis and treated the issue as a “collateral source” issue, and ruled that the plaintiff can recover the full face amount.
But as to the bills from UVMMC, the court concluded that the collateral source rule does not apply, and that it would be unfair for UVMMC to have to pay back to the plaintiff the full face amount of UVMMC’s bills when UVMMC itself had “written off” a huge portion of those bills and accepted a much lower amount from Medicare and the military insurer in full payment. Accordingly, UVMMC’s liability on its own bills will be limited to the amount actually paid.
The collateral source rule only prevents an alleged tortfeasor (here, the medical malpractice defendant, UVMMC) from benefitting from a third party’s (typically, an insurer’s) payments to a third party health care provider, to cover the plaintiff’s damages caused by the tortfeasor. To constitute a collateral source, there must have been a payment made by an unrelated third-party on behalf of the plaintiff. Helfend v. Southern Cal. Rapid Transit Dist., 2 Cal.3d 1 (1970). In a typical case, the defendant-tortfeasor is not permitted to benefit from that third-party payment by way of reducing its damages liability to the plaintiff. But where the defendant is “connected with” the payment, the collateral source rule does not apply. In a medical malpractice case the defendant hospital is not an unrelated third party and is “connected with” the reduced bill when it writes off the amount of the bill that is not paid by the third-party (insurance or Medicare, etc.). This written-off amount is essentially a partial payment of the bill by the defendant hospital and is therefore “outside the collateral source rule.” Therefore the court concluded that the plaintiff can only recover the amount of UVMMC’s bill paid by Medicare. In this situation, to rule otherwise would force UVMMC to give back to the plaintiff, in the form of medical specials, approx. $300,000 more than it received and accepted in payment for those specials.
It would be unreasonable for UVMMC to have to pay to plaintiff in medical expenses an amount that UVMMC already incurred and “paid” on plaintiff’s behalf by writing those expenses off and accepting a lower payment from Medicare. To the extent there is any benefit to the plaintiff from the defendant’s write-off, that benefit was provided by the defendant, at the defendant’s own expense.
This decision is significant in the medical malpractice area. It is significant for that species of med mal cases where: (1) the plaintiff is not seeking recovery of medical bills from a third party health care provider that treated her to address the defendant healthcare provider’s alleged malpractice (or not only from such a third party), but the medical bills from the defendant itself; and (2) the “face amount” and “amount actually paid” differential is significant.
The court’s ruling in this case establishes precedent that in such a case the plaintiff cannot seek to recover a greater amount of damages, in the form of medical specials, than the defendant was actually paid for treating the plaintiff.
 We do not believe this is a collateral source rule issue. Restatement (Second) Torts § 920A (1979). The issue is not that a third-party payor (insurance, Medicaid, etc.) paid for all or part of a plaintiff’s medical bills. Rather the issue is a damages issue – what is the reasonable value of the medical services provided as established by how much the medical treatment actually cost. A defendant who is seeking to limit a plaintiff’s recovery of medical specials to the amount actually paid is not seeking to avoid liability for the specials but is only seeking to prevent a plaintiff from recovering more than the treatment actually cost, i.e., obtaining a windfall, through the artifice of presenting the jury with medical bills that show a false dollar figure for the treatment rendered. We believe this amounts to misleading the jury into awarding an unfairly high damages award in the medical specials category—effectively punitive damages without the requisite showing of malice. See e.g. Howell v. Hamilton Meats and Provisions, Inc., 52 Cal.4th 541 (2011) (limiting the amount of plaintiff’s recoverable medical specials to the amount paid by plaintiff’s insurer in full satisfaction of the medical bills does not violate collateral source rule).
 The court rejected UVMMC’s argument that government payments, such as Medicare, should be treated differently from insurance under the collateral source rule.
 It should be noted that we are only discussing the category of damages known as “medical specials.” A personal injury plaintiff is of course free to seek whatever amount of general damages, such as pain and suffering, etc., she can persuade the jury is fair and just under the circumstances.
 A few other courts have ruled the same way on similar facts. See e.g. Hardi v. Mezzanotte, 818 A.2d 974 (D.C. 2003) (discussing and distinguishing earlier decision concluding that application of the collateral source rule where “medical services [were] provided by the tortfeasor itself … would have required, in effect, double payment.”); Williamson v. St. Francis Med. Ctr., Inc., 559 So. 2d 929 (La. Ct. App. 1990).