Swan Song for Swanson?

Submitted by HKM Profession… on Wed, 02/15/2017 - 15:02

Casey Suszynski By Casey Suszynski 

Why Purchasing Subrogation Interests is not a Prerequisite to Seeking Collateral Offsets for Medical Provider Discounts in Minnesota

In many (if not most) personal injury actions, the prevailing plaintiff’s past medical expenses will ultimately determine the damages he or she will recover. Generally speaking, the more significant the injury sustained, the more expensive treatment will be. Traditionally, and in most states, a prevailing plaintiff is entitled to recover the entire amount of past medical expenses related to the injury caused by a tortfeasor, regardless of whether the plaintiff, the plaintiff’s insurer, or some other source (all “collateral” sources), actually paid the medical expenses.1 

Commentators had long criticized this rule as a plaintiff’s mechanism for double recovery and windfall judgments.2Thus, in 1986 the Minnesota Legislature abrogated the common law rule by adopting Minnesota’s current collateral-source statute, which provides that tortfeasors and insurers may obtain post-verdict reductions for certain benefits plaintiffs received from collateral sources, including medical providers.3

The collateral source statute reflects the practical reality that medical providers regularly do not seek recovery on a large portion of medical expenses billed, because insurers often refer their policyholders to providers. In exchange, providers offer insurers a reduced fee for medical services. Put another way, insurers and providers frequently have “negotiated discounts.” Personal injury plaintiffs, and even those policyholders who never make a claim, may also benefit from negotiated discounts, as this practice allows insurers to keep the cost of premiums down and ensures the policyholder will never have to pay the amount that was discounted. 

Although section 548.251 does not specifically identify negotiated discounts as a collateral source, the Minnesota Supreme Court held in the 2010 case of Swanson v. Brewster that “the negotiated discount is unambiguously a collateral source for purposes of the collateral-source statute.”4 In other words, if a $100 medical bill was satisfied for $50, recognizing a $50 “negotiated discount,” the plaintiff could only recover the actual amount paid ($50), while the discounted amount constituted an uncollectible collateral source. Despite the Swanson Court’s refusal to mince words, many litigants in the post-Swanson landscape believed the Court’s ruling was…negotiable.  

A number of plaintiffs in the wake of Swanson argued that negotiated discounts could only be appropriately offset if the defendant had purchased the insurer’s subrogation right because that is what the defendant’s insurer did in Swanson. There, a motor vehicle operated by the defendant struck the plaintiff while the plaintiff was on his motorcycle.5 Both parties were insured; the defendant had motor vehicle insurance through State Farm, and the plaintiff’s health insurance was provided by HealthPartners.6 By negotiating a discount with the plaintiff’s medical providers, HealthPartners paid only $17,643.76 of the plaintiff’s $62,259.30 medical bills.7 As the Court mentioned in a floodgate-opening footnote, “State Farm purchased the subrogation right so that there would be no obstacle to securing a collateral-source reduction for amounts paid by HealthPartners on Swanson's behalf.”8 The nearly seven years of litigation that ensued would illuminate, but not resolve, the question raised by Swanson: does the fact that State Farm purchased subrogation interests to secure the reduction mean those interests had to be purchased to effect that reduction? 

In several instances, plaintiffs persuaded Minnesota District Courts that the answer to this question was “yes.” For example, in Smith v. Wells Concrete Products Co., the Faribault County District Court held that Swanson was “inapposite” because the defendant’s insurer in Smith did not purchase the plaintiff’s insurer’s subrogation rights.9Consequently, the defendant’s insurer was found liable for all “expenses incurred” by the injured plaintiff, rather than the “amounts paid,” which proved to be a difference of over $123,000.10

Other districts, however, tended to “offset” their sister courts. In Arnold v. Titterington, the Ramsey County District Court concluded that expenses satisfied through negotiated discounts are “collateral sources” and “properly offset from the verdict” regardless of “whether the tortfeasor purchases the subrogation interest or not.”11 In Guzek v. Sirois, where the insurer asserted its subrogation rights for the amount it actually paid to medical providers, the Wright County District Court determined that the negotiated discount must be offset from the jury’s award to the plaintiff.12 In part, the Guzek Court predicated its ruling on the lack of evidence that the insurer could actually assert a subrogation right for the discount, noting that “the negotiated discount represents monies that no party has paid or ever will pay.”13

Last April, in Auers v. Progressive Direct Insurance Co., the Minnesota Court of Appeals endeavored to resolve this dispute.14 At issue before the Auers Court was whether the negotiated discount value could be recovered by a plaintiff if the plaintiff – not the defendant – had purchased the insurer’s subrogation interest.15 The AuersCourt concluded that “[b]ecause a negotiated discount is a collateral source subject to offset under the statute and Swanson, and because a subrogation right cannot exceed the amount that was paid by the subrogee,” the negotiated discount is a collateral source regardless of whether subrogation rights have been purchased.16 

Two recent District Court Orders appear to evince the full, but possibly temporary, disposition of this question. In Kedrowski v. Lycoming Engines, the Ramsey County District Court found that the defendant in an aviation products liability case was “entitled to a statutory offset for the awarded past medical expenses less [the provider’s] actual payments for which it may, and did, assert a subrogation claim.”17 Perhaps exhorting the Legislature to weigh in, the Washington County District Court recently opined that “until further judicial analysis of the issue and/or a legislative remedy, the ‘negotiated discount’ or ‘gap’ appears to now be considered a collateral source subject to offset against the amount awarded by the Jury.”18Notably, the Washington County District Court appeared to echo the sentiment expressed by the Court of Appeals in Auers, which commented that “to the extent that respondents think the law should be changed,” the intervention of the Legislature or the Supreme Court would be required.19

As it stands, if you are party to a Minnesota personal injury case, Minnesota’s courts have determined that you may not need to purchase subrogation interests at all – until, of course, the Legislature or Supreme Court takes them off “discount.”   

1 Imlay v. City of Lake Crystal, 453 N.W.2d 326, 331 (Minn. 1990).
2 Id. (citing Dan B. Dobbs, Handbook on the Law of Remedies § 8.10, at 584 (1973); 2 Fowler V. Harper & Fleming James, The Law of Torts § 25.22, at 1348 (1956)).
3 See Minn. Stat. § 548.251, subd. 3(a).
4 784 N.W.2d 264, 276 (Minn. 2010).
5 Id. at 266.
6 Id.
7 Id. at 266-67.
8 Id. at 267, fn. 4.
9 Order Denying Defendant’s Motion for Collateral Source Reduction, No. 22-CV-12-299, 2014 WL 2898604, at *1 (Minn. Dist. Ct. Mar. 31, 2014).
10 Id. at *2; see also Order Denying in Part and Granting in Part Plaintiff’s Post-Verdict Motions, Fonkert v. Stein, No. 73-CV-10-407 (Minn. Dist. Ct. Feb. 8, 2012) (denying the defendant’s motion for collateral source reduction because the defendant did not purchase the subrogation rights of the plaintiff’s health insurers); Order Granting Plaintiff’s Application for Taxation of Costs and Disbursements, Coopman v. Buffalo Clinic, P.A., No. 86-CV-09-6895 (Minn. Dist. Ct. Dec. 10, 2012) (denying defendant’s request for collateral source reduction).
11 No. 62-CV-14-1310, 2015 WL 5704143, at *2-3 (Minn. Dist. Ct. Aug. 11, 2015).
12 No. 86-CV-12-6556, 2014 WL 3764781, at *2-4 (Minn. Dist. Ct. June 27, 2014).
13 Id. at *3; see also Norine-Iversen v. Bergsten, No. 19HA-CV-14-3181, 2015 WL 9704953 (Minn. Dist. Ct. Oct. 15, 2015) (stating that “there is no subrogation interest in amounts not actually paid by the subrogor”).
14 878 N.W.2d 350 (Minn. Ct. App. 2016).
15 Id. at 353.
16 Id. at 352 (internal citations omitted).
17 No. 62-CV-12-9581, 2016 WL 4919830, at *25 (Minn. Dist. Ct. Aug. 16, 2016).
18 Hamlin v. Hook, No. 82-CV-14-2646,2016 WL 4581504, at *10, fn. 10 (Minn. Dist. Ct. Aug. 11, 2016).
19 Auers, 878 N.W.2d at 356.

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