Under Colorado law, the correct measure of an injured person’s damages from medical bills is the full amount that is billed, not the discounted rate paid by health insurance, Medicare, Medicaid or medical lien financing companies. Colo. Rev. Stat § 10-1-135. Oftentimes, defense attorneys request access to unredacted portions of an injured person’s medical bills in order to determine how much has been billed for services vs. how much has actually been paid out-of-pocket by the individual. The stated objective is to obtain this information in order to reduce the value of a plaintiff’s damages, which is contrary to Colorado law. Unfortunately, more courts, both state and federal, are beginning to follow the disturbing trend towards allowing discovery of billed vs. paid amounts.
The “collateral source rule” is a law in many state jurisdictions that prohibits the reduction of a plaintiff’s damages by the amount already paid by a third party, such as a health insurer. Colorado’s collateral source rule prohibits the admission of amounts paid evidence in collateral source cases, even for the purpose of determining the reasonable value of medical services rendered. Sunhara v. State Farm Mut. Auto Ins. Co., 280 P.3d 649, 654 (Colo. 2012). Evidence of a plaintiff’s receipt of collateral source benefits is not only inadmissible to offset or mitigate damages, but also involves a substantial likelihood of prejudicial impact because evidence of collateral benefits is readily subject to misuse by a jury. Id at 655.
In general, parties to a lawsuit may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of either party and proportional to the needs of the case. Colo. R. Civ. P. 26(b)(1). With that said, the scope of discovery can be limited by the rules of procedure and common law. While the collateral source rule prohibits the admission of such evidence, it should also prohibit the discovery of such information because of its prejudicial impact.
The policy underlying the collateral source rule is “that a tortfeasor should not benefit, in the form of reduced damages liability, from an injured party’s receipt of collateral source benefits. Walmart Stores, Inc. v. Crossgrove, 276 P.3d 562, 568 (Colo. 2012). The receipt of collateral source benefits is irrelevant in fixing the amount of the tortfeasor’s liability. Volunteers of America Colorado Branch v. Gardenswartz, 242 P.3d 1080, 1082 (Colo. 2010).
If the stated reason for defense attorneys’ requests for discovery of collateral source information is to reduce the value of a plaintiff’s medical damages, allowing discovery of that information would encourage parties to violate the spirit of the collateral source rule. The whole purpose of the rule is to prevent tortfeasors from benefitting, in the form of reduced liability, from compensation in the form of money or services that a plaintiff may receive from a third-party source. Accordingly, evidence of amounts paid must be excluded from evidence and from the reach of discovery.