Collateral Source Rule Does Not Apply to Medicare Payments
Heather Sanderson
June 24, 2015


In an opinion out of Delaware, Stayton v. Delaware Health Corporation,, 2015 WL 3654325 (June 12, 2015), Delaware’s Supreme Court found that the collateral source rule does not apply to payments made by Medicare. The collateral source rule generally means that a tortfeasor cannot reduce its damages because of payment or compensation received by the injured person from an independent source. However, in this case, the collateral source rule did not apply. Let’s find out why.

The plaintiff, Stayton, sustained burn injuries while at a skilled nursing center. Stayton brought a medical negligence suit against those responsible for her care at the skilled nursing center. While Stayton’s medical bills totaled $3,683,797.11, because she was a Medicare beneficiary, Medicare was able to pay $262, 550.17 in total to fully satisfy the expense of her hospital stay and other care. In other words, Medicare was able to “write-off” $3,421, 246.94 and Stayton’s healthcare providers could not “balance bill” her for the amount written off.

At the Superior Court level, the defendants’ motion seeking judgment as a matter of law that Stayton’s medical expense damages were limited to the amount actually paid by the Centers for Medicare and Medicaid Services (CMS), rather than the amount Stayton might have been billed for her care, was granted. Stayton then filed an interlocutory appeal to the Superior Court arguing that the Superior Court should have applied the collateral source rule to the Medicare write-offs.

The Supreme Court agreed with the Superior Court’s decision and found that the collateral source rule does not apply to amounts required to be written off by Medicare. The Delaware Supreme Court noted that provider write-offs are not payments made to or benefits conferred on the injured party. The $3,421,246.94 that Stayton’s healthcare providers wrote off was not paid off by anyone. Additionally, any benefit that Stayton’s healthcare providers conferred in writing off over ninety percent of the collective charges was conferred on federal taxpayers, as a consequence of Medicare’s purchasing power. Therefore, the collateral source rule does not apply to the amounts written off by Stayton’s healthcare providers.

Franco Signor Commentary: The Delaware Supreme Court came to the right conclusion in this case. Medicare is not insurance. Additionally, the amount paid by Medicare in this case was not truly written off. Where a healthcare provider accepts a Medicare patient, the provider is aware that it will be paying Medicare rates for the treatment. Therefore, the full amount of the medical expenses rendered is never truly “written off.”

If the plaintiff in a liability case wishes to preserve the full value of the medical treatment to be recovered as a collateral source, then the plaintiff should work with the healthcare providers to create a lien, or force the primary plan to pay.

Additionally, this decision is consistent with the intent of the MSP.  Medicare does not want providers to bill Medicare; the preference is to bill the primary plan.  “Pay and chase” (the conditional payment recovery process) is expensive for Medicare, and it is in the best interests of the Federal government to coordinate benefits with other plans, then to pay and later seek reimbursement.  The decision makes perfect sense. It will be interesting to see if this decision will be persuasive in other jurisdictions where this issue comes into play.

Heather Schwartz Sanderson, Esq., MSCC, CHPE, CLMP, CMSP
Chief Legal Officer
Franco Signor LLC