What is the Collateral Source Rule?

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collateral source rule

If your client is injured in a car crash, does the amount your client receives from an insurance company reduce the amount he can receive in compensation from the negligent party who hit his car?  

That question is answered by something called the Collateral Source Rule.  In this article, we are going to discuss precisely what the collateral source rule is, and then give some recent developments on that legal concept.  If, after reading this article, you have additional questions about this or any other insurance billing issues, we welcome you to contact Medical Billing Analysts by phone at 800-292-1919 or intake@medicalbillinganalysts.com. We’re here for you and your personal injury clients.

What Is the Collateral Source Rule?

The Collateral Source Rule stops an injured person’s personal injury damages from being reduced by payments that he or she received from their own medical insurance, workers’ compensation, or other sources.  In other words, the rule avoids a reduction in damages solely because the person received money from a “collateral source.”  Thus, in an injury case, any monetary compensation received by the injured party (plaintiff), from anyone other than the legally responsible party (defendant) will not reduce the total recoverable damages from the defendant.

This issue typically comes up when the injured party has health insurance and his or her insurance company pays for all or for part of the cost associated with medical treatment for the injuries the plaintiff sustained. The injured person can be compensated by their insurance company and the defendant under the Collateral Source Rule, and medical billing review will determine if the cost of treatment was fair and reasonable for the patient’s region.

Other Collateral Sources

Health insurance is not the only situation in which the Collateral Source Rule comes into play in a personal injury case. Other collateral sources can include Social Security benefits, Medicaid benefits, and as noted workers’ compensation payments (if the injury occurred in the workplace). The Collateral Source Rule even covers any monies received from friends or family members who are helping to mitigate any of the damages.

Doesn’t the Rule Allow Double Recovery?

There is a debate on whether the Collateral Source Rule should be permitted in personal injury cases.  Some argue that ensuring that money from collateral sources does not change the amount a defendant should pay in damages is a form of double recovery for the same injuries.

However, the rationale behind the Collateral Source Rule is one of deterrence.  It would be unfair to remove the financial burden from the at-fault party simply because the plaintiff happens to have good insurance.  Moreover, it would be unfair to other defendants if they happened to cause injury to someone who has no access to other sources of money.  Thus, the Collateral Source Rule takes the issue of other sources of money out of the equation altogether. 

The Collateral Source Rule in Practice

Suppose that, through negligence, a car was left on an incline without the parking brake engaged.  It then rolled down the hill into another vehicle as it was making its way through an intersection.  The driver of the vehicle that was hit suffered severe injuries costing $50,000, and his damaged car was a total loss.

For the purposes of understanding the Collateral Source Rule, suppose that the injured driver’s health insurance covered the full $50,000 cost of medical treatment, and the injured driver’s parents bought him a car as a replacement for the one they lost.

The injured party in this case can still sue the responsible party for the full $50,000 of medical treatment, and the value of the totaled car as property damage.  Moreover, the jury will not hear about the payments made by the insurance company or the gift of a car from the injured party’s parents.

Collateral Source Rule Reform

Some states have taken measures to modify the Collateral Source Rule in some cases.  In California, for example, the amounts that an injured party receives from health insurance due to medical malpractice will be admissible in evidence in a medical malpractice lawsuit.  Yet, California also will allow a plaintiff to claim the amount of money he or she paid in order to get the medical insurance coverage in the first place.  Thus, California’s modification of the Collateral Source Rule is relatively limited.

The State of Florida takes a different approach.  In Florida, evidence of insurance payments is prohibited, pursuant to the State’s Collateral Source Rule, yet Florida will allow a defendant to introduce evidence of monies that an injured person received from government benefits.  Also in Florida, a damages award can be reduced by the amount that an insurance company is owed if they initially wrote off part of the medical expenses. 

In sum, the Collateral Source Rule is something that you need to be aware of when litigating personal injury matters for your clients.  In that regard, Medical Billing Analysts can work side-by-side on medical billing review to determine the amount of medical billing that is reasonable and necessary.

Why You Need Medical Billing Analysts

It is highly recommended to hire a medical billing and reimbursement expert to determine and testify to the reasonable value of medical service. The provider’s location can affect these costs and reimbursements, and a comprehensive medical billing review will determine if the costs were fair.

Whether you are a plaintiff or a defendant in a case, one of the most important items in Automobile, Personal Injury, and Medical Malpractice cases is the cost of medical bills. Figuring out medical costs can be complicated, and expert guidance is critical to ensuring you have a clear understanding of what is “fair and reasonable” with regards to the finances involved in your medical care.

Medical Billing Analysts offers litigation support services nationwide, with offices in New York, New Jersey, Connecticut, Pennsylvania, Georgia, Florida, Texas, Nevada & California. Medical Billing Analysts represent both defendants and plaintiffs with regard to improper medical billing and coding.

The team of MBA professionals will review the hospital, medical and therapy bills to determine the value of past medical expenses and based on local CPT codes they can also perform a Cost Projection Analysis of future costs.  Through meticulous analysis, we can justify reasonable cost of services which assists in resolving the case.

Contact Medical Billing Analysts by phone or email at 800-292-1919 or intake@medicalbillinganalysts.com. We’re here for you, whether you need an evaluation of a single charge, or a complex injury case.