Sykes v. Vixamar and Progressive Univ. Ins. Co.: A Discovery Bar or Discovery Strategy?

26 Feb 2020 11:45 AM | Jennifer Edwards (Administrator)

By Austin Walsh, Hedrick Gardner Kincheloe & Garofalo, LLP

“Now this is not the end.  It is not even the beginning of the end.  But it is, perhaps, the end of the beginning.”  - Sir Winston Churchill, Remarks at The Lord Mayor’s Luncheon, Mansion House, London (Nov. 10, 1942).

From the time it took effect, North Carolina Rule of Evidence 414 profoundly changed how tort claims are investigated, negotiated, and litigated.   However, but for withstanding a constitutional challenge before a three-judge panel in Pollard v. Huber, the Rule has faced little scrutiny in the courts.  Last summer, after initial successes in defense of Rule 414, the Court of Appeals opinion in Sykes v. Vixamar and Progressive Univ. Ins. Co. caused us to take pause and consider what Rule 414’s language regarding “amounts actually necessary” to satisfy a medical expense actually means.  

Rule 414

We know that Rule 414 limits the admissibility of medical expenses to “the amounts actually paid to satisfy the bills that have been satisfied, regardless of the source of payment, and evidence of the amounts actually necessary to satisfy the bills that have been incurred but not yet satisfied.”  The primary dispute since 2011 has been what constitutes relevant evidence of those expenses.  See  Nicholson v. Thom, 236 N.C. App. 308, 337, 763 S.E.2d 772, 791 (2014) (noting in dicta that Rule 414 abrogated the collateral source rule with regard to past medical expenses).  See also Sigmon v. State Farm Mut. Auto. Ins. Co., 5:17-CV-00225, 2019 WL 7940194 at *2 (WDNC Nov. 14, 2019) (holding that Rule 414 is limited to past medical expenses but that a plaintiff may admit the total amount of medical expenses for tangential arguments “such as pain and suffering, embarrassment, or reputational harm – related to the alleged ‘bad debt’ or ‘uncollectible’ write offs”).

Amendments to General Statute Section 8-58.1(b) took effect on the same date as Rule 414.  This section receives much less fanfare but does the heavy lifting by clarifying how a defendant may overcome the presumption that a plaintiff’s medical expenses are reasonable.  Section 8-58.1(b) states that when a “provider of hospital, medical, dental, pharmaceutical, or funeral services gives sworn testimony that the charge for that provider’s service either was satisfied by payment of an amount less than the amount charged, or can be satisfied by payment of an amount less than the amount charged” then the presumption of a medical bill’s reasonableness is rebutted.  Therefore, to contest the admission of a plaintiff’s medical expenses, a defendant may “introduce evidence that some of those bills were written off” or, in the case of the tangential arguments described in Sigmon, a defendant may receive “a limiting instruction informing the jury that the amount written off cannot be considered for determining medical expenses.” 

Sykes v. Progressive

Following enactment of Rule 414, attorneys and paralegals scrutinized write offs and contractual adjustments and began to consider why a provider might be required to take less than sticker price.  Cue the Fair Health Care Facility Billing and Collections Practices Act.

NC General Statute Section 131E-91 was enacted in 1991 and, at first, only required hospitals to provide an itemized list of charges within 30 days of discharge if requested by the patient.  In 2013, the statute was expanded to its current form and subsection (c) was added, which states: “A hospital or ambulatory surgical facility shall not bill insured patients for charges that would have been covered by their insurance had the hospital or ambulatory surgical facility submitted the claim or other information required to process the claim within the allotted time requirements of the insurer.” 

Based on Rule 414’s favorable treatment in Nicholson, and the clear language of Rule 414, defendants naturally argued that, pursuant to Section 131E-91, if a plaintiff owed nothing on a medical bill, the amount “actually necessary to satisfy the bills that have been incurred but not yet satisfied” was in fact zero. 

In Sykes, the Court of Appeals took up the issue of whether Section 131E-91(c) required hospitals to bill a patient-plaintiff’s medical insurance in order to maintain a lien against a plaintiff’s recovery in a civil action.  The Sykes Court held that Section 131E-91(c) was “not intended to force hospitals to bill health insurers” and, therefore, timely billing to a plaintiff’s health insurer was not required to maintain a lien against a plaintiff’s recovery.

The Court of Appeals acknowledged that the provider abandoned its right to seek payment from plaintiff by means other than the litigation when it failed to timely submit a claim to plaintiff’s health insurer.  Thus, if plaintiff lost on liability, so too did the provider.  Progressive argued that this elimination of plaintiff’s liability to the provider outside of litigation (due to untimely billing) eliminated the provider’s lien on plaintiff’s recovery.  In effect, there could be no lien without an underlying debt. 

On this point, Progressive cited cases in which medical providers sought to collect more through a statutory lien than they would be entitled to collect through health insurer contracts.  In this regard, the Court of Appeals made two points.  First, the provider’s failure to timely bill health insurance did not wipe away the debt because an alternative payment source - defendant - remained available.  Second, the cases cited by Progressive were distinguishable because, in those cases, the hospital was seeking more than the amounts paid and actually necessary to satisfy the bill. The hospitals in cases cited by Progressive were seeking reimbursement for the health insurance contractual adjustment, which the hospitals would not have been paid under any circumstance.  On this second point, the Court of Appeals specifically stated in dicta that “defendants may introduce evidence showing a hospital seeks more through its lien than it would have otherwise accepted from a patient or health insurer. . . . . Evidence that the hospital would accept less than the amount claimed in a medical lien to satisfy the underlying bill is admissible to challenge the reasonableness of the bill. . . . Defendants in these cases may seek discovery on this issue and courts should freely admit this evidence at trial.”

Rule 414 after Sykes

Rule 414 was not directly at issue in Sykes; however, the Court’s holding that the medical provider’s lien (rather than amount billable to plaintiff) was evidence of the amount “actually necessary to satisfy the bills that have been incurred but not yet satisfied” will affect how defendants negotiate and litigate tort claims going forward.  After Sykes, Defendants can no longer argue that a total write off under Section 131E-91(c) results in exclusion of the original bill or lien.  Whether the Court of Appeals’ logic allows providers to claw back charitable write offs or uninsured discounts and assert liens on the original amounts is a question for another day.

The silver lining to Sykes is the clear affirmation given to defendants, albeit in dicta, that a defendant may develop evidence from a provider about what the provider would have been required to accept under a health insurance contract or, perhaps, under required charity care discounts, and that such evidence shall be “freely” admitted by the trial court. 

Sykes was the first time since 2011 that we have had to pause and re-think the language of Rule 414.  It marks the “end of the beginning” to our use and understanding of the Rule, opens up new issues for litigation, and begs questions of language that we believed to be plain and clear.  Nevertheless, Sykes’ affirmation that defendants are entitled to pull back the curtain of provider’s billing practices gives defendants the strongest support yet for discovery and motion practice on Rule 414.

N.C. Gen. Stat. § 8C-1, Rule 414 (2019).

N.C. Gen. Stat. § 8-58.1(b) (2019). 

Nicholson v. Thom, 236 N.C. App. 308, 337, 763 S.E.2d 772, 791 (2014)

Sigmon v. State Farm Mut. Auto. Ins. Co., 5:17-CV-00225, 2019 WL 7940194 at *2 (WDNC Nov. 14, 2019).

1991 N.C. Sess. Laws Ch. 310 (H.B. 588).

2013 N.C. Sess. Laws Ch. 382 (H.B. 834).

Sykes v. Vixamar and Progressive Univ. Ins. Co., 830 S.E.2d 669, 673, 830 S.E.2d 669.