Medical Malpractice and the Collateral Source Rule

In North Carolina, a defendant who attempts to introduce evidence of money received by an injured plaintiff from a source collateral to the defendant violates the collateral source rule. The North Carolina Supreme Court has explained that the collateral source rule requires that

a plaintiff's recovery may not be reduced because a source collateral to the defendant, such as a beneficial society, the plaintiff's family or employer, or an insurance company, paid the plaintiff's expenses. Rather, an injured plaintiff is entitled to recovery for reasonable medical, hospital, or nursing services rendered him, whether these are rendered him gratuitously or paid for by his employer.

Cates v. Wilson (1987)

The North Carolina Court of Appeals further explained that the rule requires that

evidence of a plaintiff's receipt of benefits for his or her injury or disability from sources collateral to [the] defendant generally is not admissible. These benefits include payments from both public and private sources. This rule gives force to the public policy which prohibits a tortfeasor from reducing [its] own liability for damages by the amount of compensation the injured party receives from an independent source. Evidence of collateral source payments violate the rule whether admitted in the defendant's case-in-chief or on cross[-]examination of the plaintiff's witness. The erroneous admission of collateral source evidence often must result in a new trial.

Nicholson v. Thom (2014)

In Nicholson, the court of appeals explained the rationale of the collateral source rule as follows:

The purpose of the collateral source rule is to exclude evidence of payments made to the plaintiff by sources other than the defendant when the evidence is offered for the purpose of diminishing the defendant tortfeasor's liability to the injured plaintiff. . . . The rule is punitive in nature[] and is intended to prevent the tortfeasor from a windfall when a portion of the plaintiff's damages have been paid by a collateral source.

In Cates, the Court examined “whether the collateral source rule embraces gratuitous government benefits.” That case involved a plaintiff who, over the course of a year, had sought treatment from her doctor for weight loss, yeast infections, urinary problems and “jumping sensations in her abdomen.” When the plaintiff complained of “periodic intervals of sharp back pain” and “green discharge pouring from her vagina,” the doctor administered a pregnancy test. A sonogram showed that the baby was ready to be born. The baby was born mentally retarded and with cerebral palsy.

The defendant sought to introduce evidence of gratuitous public benefits, such as Medicaid, received by the plaintiff which would mitigate the damages. The plaintiff argued that the introduction of this evidence violated the collateral source rule.

The Court held that the collateral source rule applied to “past Medicaid payments, future public benefits, and gratuitous care provided in the home.” With respect to past Medicaid payments, the Court treated money received as “a form of insurance paid for by taxes collected from society in general.” The Court also found it persuasive that North Carolina law provides for a right of subrogation for the state to recover amounts paid to the plaintiff.

With respect to future public benefits, the Court reasoned that “[t]he goal of the law of damages is to place an injured party in as nearly the same position as he would have been had he not been injured.” An injured plaintiff should not be forced to depend on public charity because this is “a position more disadvantageous than if he were freed from this dependence.” The recovery of future medical services will afford the plaintiff the “right” to seek private care.

The Court further reasoned that future public benefits are uncertain and “injured plaintiffs cannot count on their continued availability” due to the fact that these benefits are subject to legislative approval. In addition, the benefits might not be available to an injured plaintiff if that plaintiff no longer continues to qualify as indigent.

Finally, with respect to the gratuitous care provided in the home (namely, rent-free living for the plaintiff and her child, help with expenses from the plaintiff’s mother, and provision of an automobile by the plaintiff’s mother), the Court reasoned that “evidence of gratuitous services and payments by a family member should not serve to mitigate a plaintiff's damages” because “[f]amily members perform gratuitous services for their injured relative's benefit, not the tortfeasor's.” In addition, just like public benefits, gratuitous benefits from a family member have an uncertain future as well.

Just last year in Nicholson, the court of appeals examined whether write-offs by the hospital (listed as a defendant in a separate suit) were inadmissible under the collateral source rule. In that case, the patient suffered from rectal cancer and underwent surgery to remove a cancerous tumor. During the surgery the doctor failed to remove a sponge from her abdomen. This failure was not discovered until almost three months after the surgery. The patient had to undergo several additional surgeries, because of which she was unable to complete chemotherapy and radiation therapy for her cancer. Her cancer returned about a year after the initial surgery and metastasized to her brain. She died about a month later.

At trial, the plaintiff was awarded over $4 million in damages. The defendant argued that the trial court erred in admitting evidence of the patient’s medical bills because over half of the total was “written off” by the hospital and not paid by anyone. The plaintiff argued the medical bills were admissible but the write-offs were not under the collateral source rule.

The court held that the collateral source rule was not applicable in Nicholson because “the hospital bills were not paid by an independent third party.” In fact, the hospital was also a defendant in a separate suit brought by the plaintiff from these facts, which the hospital settled. The amount received by the plaintiff in that settlement was applied to this case to reduce the plaintiff’s verdict.

The court noted that there are no cases in this jurisdiction or other jurisdictions “addressing the situation in which a defendant doctor in a medical malpractice case attempts to introduce evidence that a hospital, which has settled with the plaintiff in a separate action arising from the same facts, reduced the plaintiff's medical bills pursuant to ‘risk management’ practices and not pursuant to a contract with a government entity like Medicare or with some other insurance company.” However, “[w]hen the hospital is a separate tortfeasor and writes off medical expenses pursuant to an agreement with a third party,... other courts have concluded that the collateral source rule is not applicable.”

The court found it important in that case that the bills were written off by the hospital, which “was not independent and not collateral to this matter.”

If you have been injured by an act of medical malpractice, visit www.rflaw.net for legal help.