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FOR IMMEDIATE NEWS RELEASE NEWS RELEASE # 56 FROM: CLERK OF SUPREME COURT OF LOUISIANA The Opinions handed down on the 2nd day of July, 2004, are as follows: BY JOHNSON, J.: 2003-C -1016 LINDA BOZEMAN, INDIVIDUALLY AND ON BEHALF OF TOMMY BOZEMAN v. STATE OF LOUISIANA, AND THE DEPARTMENT OF TRANSPORTATION AND DEVELOPMENT (Parish of Caddo) In conclusion, Medicaid recipients are unable to collect the Medicaid "write-off" amounts as damages because no consideration is provided for the benefit. Thus, plaintiff's recovery is limited to what was paid by Medicaid. However, in those instances, where plaintiff's patrimony has been diminished in some way in order to obtain the collateral source benefits, then plaintiff is entitled to the benefit of the bargain, and may recover the full value of his medical services, including the "write-off" amount. VICTORY, J., concurs. KNOLL, J., additionally concurs and assigns reasons.

07/02/04

SUPREME COURT OF LOUISIANA
NO. 03-C-1016 LINDA BOZEMAN, INDIVIDUALLY AND ON BEHALF OF TOMMY BOZEMAN Versus STATE OF LOUISIANA, AND THE DEPARTMENT OF TRANSPORTATION AND DEVELOPMENT

ON WRIT OF CERTIORARI TO THE COURT OF APPEAL, SECOND CIRCUIT, PARISH OF CADDO

JOHNSON, Justice This personal injury case is the first instance where this court has addressed the application of the collateral source rule to medical expenses "written-off" or contractually adjusted by healthcare providers pursuant to the federal Medicaid
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program. Under the collateral source rule, a tortfeasor may not benefit, and an injured plaintiff's tort recovery may not be reduced, because of monies received by the plaintiff from sources independent of the tortfeasor's procuration or contribution. When an injured plaintiff is a Medicaid recipient, federal and state law require that the healthcare providers accept as full payment, an amount set by the Medicaid fee schedule, which, invariably, is lower than the amount charged by the healthcare provider. The difference between what is charged by the healthcare providers and what is paid by Medicaid is referred to as the "write-off" amount. We granted this writ of certiorari to determine whether this plaintiff, who was a Medicaid recipient, is entitled to recover medical damages that were "written-off" by his healthcare providers, under the collateral source rule. After a thorough review of the record and relevant law, we affirm the lower courts' determinations that Medicaid recipients are unable to recover the "write-off" amounts as damages.

FACTS AND PROCEDURAL HISTORY Tommy Bozeman was catastrophically injured on May 12, 1993, while driving west on Highway 173, also called Shreveport-Blanchard Road, near its intersection with Industrial Park Drive, just north of Shreveport in Caddo Parish, when his right tires dropped off the paved portion of the highway onto the shoulder just as Mr.
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Bozeman came upon a curve. As a result of the accident, Mr. Bozeman suffered brain damage, and numerous fractures, bruises, and abrasions. A helicopter flew Mr. Bozeman from the accident scene to the LSU Medical Center in Shreveport, where he stayed until June 1993. Thereafter, Mr. Bozeman was transferred to Summit, a long-term care facility where he received around the clock care. Mr. Bozeman remained in long-term care facilities, in a semi-conscious state, until his death on August 29, 1996, although he did return to LSU Medical Center in August 1993 for surgery. On November 2, 1993, Mr. Bozeman, with his wife, Linda Bozeman, as his signing representative, applied for, and was subsequently granted, Medicaid benefits. Ten days later, on November 12, 1993, Linda Bozeman filed a Petition for Personal Injuries against the State of Louisiana, Department of Transportation and Development (DOTD).1 Subsequently, plaintiff filed second and third supplemental petitions that added Chrysler Corporation, Jeep-Eagle Corporation, and other related

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On May 11, 1994, Virgie Tipton, Tommy Bozeman's mother, filed a separate, Concursus Petition on his behalf alleging that she had been appointed as Tommy Bozeman's provisional curatrix. The two separate suits were never consolidated, although the trial court had scheduled, but subsequently continued, a Motion to Consolidate. Nonetheless, an apparent settlement with Chrysler Corporation occurred, as briefly discussed in Bozeman v. State of Louisiana, DOTD, 34,430 (La.App. 2 Cir.4/4/01), 787 So.2d 357, 368. The Concursus proceedings are not a part of the instant suit before the court. However, it should be noted that the Louisiana Department of Health and Hospitals (DHH) filed an Answer to the Petition for Concursus asking for judgment in DHH's favor for $310,749.46. 3

co-defendants. By July 1998, all defendants, except for the State of Louisiana, were dismissed. Thus, the State of Louisiana, DOTD, was the sole defendant when the case proceeded to a bench trial on January 19, 2000. At trial, both parties jointly introduced exhibit J-1, a document from the Louisiana Department of Health and Hospitals (DHH), the agency that administers Louisiana's Medicaid program, which details the medical services of healthcare providers and the amounts paid by Medicaid for Mr. Bozeman's care. The trial court denied the State's request for a credit to DOTD for those amounts paid by Medicaid. Ultimately, the trial court found the State of Louisiana 75% at fault and apportioned 25% of the fault to Mr. Bozeman. Plaintiff was awarded damages and $613,626.64 in medical expenses, which included $498,350.68 from the joint exhibit, J-1, and additional invoices filed into evidence by the plaintiff. This award was appealed by the State of Louisiana, DOTD, which argued that the trial court erred in its liability determinations and its damages awards, which included the award of $613,626.64 for medical expenses. DOTD asserted that the trial court should have awarded medical expenses against the State of Louisiana for $321,763.08. This figure represents the difference between, $613,626.64, the total amount of Mr. Bozeman's medical expenses, and $291,863.56, the amount of

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Mr. Bozeman's medical expenses paid by Medicaid, through DHH, as shown on the joint exhibit, J-1. On April 4, 2001, the Court of Appeal affirmed the trial court's judgment with respect to liability and damages, with the exception of the trial court's award of medical expenses. Bozeman v. State of Louisiana, and the Dep't. of Transp. and Dev., 34,430 (La.App. 2 Cir. 4/4/01), 787 So.2d 357 (hereinafter Bozeman I). The court noted that the trial court's ruling preceded the Second Circuit's opinion in Terrell v. Nanda, 33,242 (La.App. 2d Cir. 5/10/2000), 759 So.2d 1026, and remanded to the trial court "so that the court may fix the amount of special damages for medical expenses in view of the Terrell opinion and to the extent that that ruling may be applicable." Bozeman I, at 369. On April 28, 2002, the trial court rendered its ruling. The trial court reduced the medical damages award from $613,626.64 to $344,999.59, after consideration of the Terrell opinion, and held that the medical expenses "written off" pursuant to the Medicaid program requirements are not recoverable by this plaintiff. The trial court rendered a separate ruling on May 14, 2002 denying a Motion to Withdraw Funds filed by the State of Louisiana, Department of Health and Hospitals (DHH). Plaintiff and DHH both appealed these separate rulings which were consolidated on appeal. In Bozeman v. State of Louisiana, and the Department of Transportation and
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Development (DOTD), 36,665, 36,803 (La.App. 2 Cir. 3/5/03), 839 So.2d 960, 967, (hereinafter "Bozeman II"), the Court of Appeal affirmed the trial court's rulings, but amended the amount of the medical damages award from $344,999.59 to $355,206.97 to reflect the correct amount of claims paid and denied by Medicaid. Consistent with the Terrell decision, the Court of Appeal held that plaintiff is prevented from recovering those medical expenses that were contractually adjusted or "written-off" by the healthcare providers pursuant to the Medicaid program. The court's reasoning was based on three main factors: (1) the absence of a natural obligation for the "writeoff" amount, (2) that no windfall should accrue to either the plaintiff or the defendant when the plaintiff is prohibited from recovering the "write-off" amount, and (3) that federal and state Medicaid statutes dictate that the healthcare providers must accept the payment set by the Medicaid fee schedule as payment in full. The Court reasoned that the goal of tort recovery is to make the victim whole and "(i)n the instant case, the plaintiff is made whole by recovering the amounts actually paid by Medicaid, which are the only expenses incurred by the recipient under the program." Id. at 966. The Court relied on the discussion in Terrell regarding natural obligations for its conclusion. Similar to the case sub judice, the issue in Terrell was whether plaintiffs in a medical malpractice action could collect medical expenses written off by plaintiff's healthcare providers pursuant to a
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Medicaid program. Id. at 1027. The Second Circuit held that the plaintiff was unable to recover medical expenses contractually written off pursuant to the Medicaid program. In Terrell, the Court concluded that no natural obligation existed because there was never any obligation on the part of plaintiffs to satisfy the medical expenses that were written off. The court referred to four requirements that must be present in order for a duty to be considered a natural obligation. Those requirements are the following: (1) The moral duty must be felt towards a particular person, not all persons in general. (2) The person involved feels so strongly about the moral duty that he truly feels he owes a debt. (3) The duty can be fulfilled through rendering a performance whose object is of pecuniary value. (4) A recognition of the obligation by the obligor must occur, either by performing the obligation or by promising to perform. This recognition brings the natural obligation into existence and makes it a civil obligation. Id. at 1030, citing Litvinoff, The Law of Obligations section 2.4, 5 Louisiana Civil Law Treatise (1992), as cited in Thomas v. Bryant, 25,855 (La.App. 2d Cir. 6/22/94), 639 So.2d 378. In Terrell, the court focused on medical expenses "incurred" by the plaintiff. The Court stated that "(a) plaintiff may ordinarily recover reasonable medical expenses, past and future, which he incurs as a result of injury." Id. at 1031, citing
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Whitthorne v. Food Lion, Inc., 30,105 (La.App. 2d Cir. 1/231/98), where incur was defined as "to become liable." According to the Court, there was no liability on the part of the plaintiffs for expenses above those paid by Medicaid. Thus, the Court concluded that the plaintiffs did not "incur" the write-off amounts because there was no natural obligation to pay it. In Bozeman II, the court also relied on the requirements for participation in the Medicaid program as a basis for its conclusion. According to the court, under state law,2 healthcare providers "are specifically required to accept Medicaid payment as payment in full and are prohibited from the billing or collecting of additional amounts from the recipient or the recipient's responsible party." Thus, Medicaid provides for full payment to healthcare providers under terms accepted by the providers through their participation in the Medicaid program. As such, "the plaintiff recovers as special damages those medical expenses paid by Medicaid. Nothing more is owed." The

LSA-R.S. 46:437.12. provides: A. In addition to the requirements specified in R.S. 46:437.11, the provider agreement developed by the department shall require the health care provider to comply with the following: (10)(a) Accept payment from the medical assistance programs as payment in full, and prohibit the health care provider from billing or collecting any additional amount from the recipient or the recipient's responsible party, except, and only to the extent that the department permits or requires, a copayment, coinsurance, or a deductible to be paid by the recipient for the goods , services, or supplies provided. 8

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Court underscored the statutory language that requires the healthcare provider to accept the Medicaid payment as "payment in full." Lastly, the Court of Appeal affirmed the trial court's denial of DHH's Motion to Withdraw Funds. The Court of Appeal held that DHH was not a party to this suit and failed to intervene, although it had an opportunity to do so. Id. at 970. The Court relied on Cole v. State ex rel. Dep't. of Transp. and Dev., 99-912 (La.App. 3d Cir. 12/22/99), 755 So.2d 315 for the proposition that the trial court is not compelled to award damages to DHH when DHH chooses not to be a litigant in the suit.3
Federal law requires each state participating in the Medicaid program to designate a single agency to administer the program. 42 C.F.R. 431.10. Among the agency's duties, is a requirement to make efforts to recover Medicaid funds that were paid in connection with a recipient's tort action from liable third parties. 42 C.F.R. 433.138. In Louisiana, that agency is the Department of Health and Hospitals (DHH) and LSA-R.S. 46:446 is the statute that empowers DHH to recover such funds. LSA-R.S. 46:446(B) states that a plaintiff who files suit for injuries and receives Medicaid benefits for those injuries "shall at the time suit is filed cause a copy of the petition to be served" on DHH. Also, "(s)uch person filing suit shall be responsible to the department to the extent of the medical payments or assistance received, interest, and attorney fees if he fails to have service made upon the department." In Bozeman II, the court concluded that DHH could not recover because the agency had knowledge of the suit. Nothing in this record indicates that DHH was ever served with a copy of the plaintiff's petition. Bozeman II, at 969. Although DHH had knowledge of the suit, knowledge alone is insufficient. Actual knowledge of a legal action cannot satisfy the want of citation and service of process because proper citation and service are the foundation of all actions. Naquin v. Titan Indemnity Co., et al., 2000-1585 (La. 2/21/01), 779 So.2d 704. Thus, both the Bozeman II and Cole courts erred in denying DHH its ability to recover funds. Their rulings incorrectly focused on DHH's failure to intervene rather than defendant's failure to meet the mandatory service requirements. Recently-passed legislation, Senate Bill No. 968, Act No. 1208 of the Regular Session, 2003, validates the position that the Legislature intended for DHH to be able to recover said funds, despite its failure to intervene at the trial court level. The statute reads as follows:
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Following the Second Circuit's decision, plaintiff, Bozeman, applied for writ of certiorari, which this court granted on June 6, 2003. Bozeman v. State of Louisiana, and the Dep't. of Transp. and Dev., 2003-1016 (La. 6/6/03), 845 So.2d 1074. DHH failed to seek review of the court's decision. DISCUSSION The collateral source rule is a rule of evidence and damages that is of common law origin, yet embraced and applied by Louisiana courts.4 This court cited the Restatement (Second) of Torts section 920A (1979) as source material for the collateral source rule in Louisiana Dep't of Transp. and Dev. v. Kansas City Southern. Ry., 2002-C-2349 (La. 5/20/03), 846 So.2d 734, 739. The Restatement (Second) of Torts codifies the rule as follows:
H. The Department of Health and Hospitals shall not lose its rights to recover the assistance payments of medical expenses the department has paid or is obligated to pay on behalf of an injured, ill, or deceased person in connection with said injury, illness, or death if the department does not intervene or file its own cause of action or take any other action allowed pursuant to the assignment of rights provision of Subsection E of this section, or R.S. 46:446.
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Deborah Van Meter, Louisiana's Collateral Source Rule: Time For A Change?, 32 LOY.L.REV. 978, 989. "The Louisiana courts have unanimously embraced the collateral source rule and have applied the doctrine in most instances. The seminal case of Gunter v. Lord, 242 La. 943, 140 So.2d 11 (1962), expresses the Louisiana Supreme Court's acceptance of the collateral source rule. Also, Kansas City Southern Ry., 846 So.2d 734, 739 (2003). "The collateral source rule is of common law origin, Restatement (Second) of Torts section 920A (1979), yet wellestablished in the jurisprudence of this state." 10

Section 920A (1) A Payment made by a tortfeasor or by a person acting for him to a person whom he has injured is credited against his tort liability, as are payments made by another who is, or believes he is, subject to the same tort liability. (2) Payments made to or benefits conferred on the injured party from other sources are not credited against the tortfeasor's liability, although they cover all or a part of the harm for which the tortfeasor is liable. Several states modified or abolished the rule during the 1980s in response to the perceived crisis in the insurance industry.5 By 1987, at least forty-four state legislatures, including Louisiana, had introduced bills to reform the collateral source rule.6 However, the Louisiana Legislature has declined to make any statutory changes to the rule. Kansas City Southern, supra, at 739. Under the collateral source rule, a tortfeasor may not benefit, and an injured plaintiff's tort recovery may not be reduced, because of monies received by the plaintiff from sources independent of the tortfeasor's procuration or contribution. Kansas City Southern Ry., supra, at 739. Hence, the payments received from the independent source are not deducted from the award the aggrieved party would otherwise receive from the wrongdoer, and, a tortfeasor's liability to an injured
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Deborah Van Meter, supra note 1, at 978. Id. at 1003. 11

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plaintiff should be the same, regardless of whether or not the plaintiff had the foresight to obtain insurance. Id, at 739-740. As a result of the collateral source rule, the tortfeasor is not able to benefit from the victim's foresight in purchasing insurance and other benefits. Suhor v. Lagasse, 2000-1628 (La.App. 4 Cir. 9/13/00), 770 So.2d 422,423. The collateral source rule has been applied to a variety of factual circumstances, although it typically applies to tort cases involving insurance payments or other benefits. In Kansas City Southern Ry., supra, this court applied the collateral source rule to environmental damages under the Louisiana Environmental Quality Act (LEQA). Louisiana's Third Circuit Court of Appeal recently applied the rule in a worker's compensation case involving services provided by the Veterans Administration. Smith v. Roy O. Martin Lumber Co., 03-1441 (La.App. 3 Cir. 4/14/04), 871 So.2d 661. The rule was applied to welfare payments in Bonnet For and Behalf of Bonnet v. Slaughter, 422 So.2d 499, 502 (La.App. 4th Cir. 1982). Further, in Bryant v. New Orleans Public Serv. Inc, 406 So.2d 767, 768 (La.App. 4th Cir. 1981), the court opined the following: The collateral source rule has been held to apply not only where plaintiff directly purchased insurance against which the plaintiff recovered, but also where there have been Medicare payments

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