Smith v. United States of America
Filing
106
Order on Post-Trial Damages Issues regarding Trial Brief 91 , Declaration 92 , Declaration 93 , Trial memorandum, 96 Trial Memorandum 103 Declaration, 104 , Motion Hearing Held, 105 . For the reasons stated in this Order, Mr. Smith is entitled to $1,847,009.06 in past medical expenses and $3,800,000.00 in future medical expenses. Please access entire text by document number hyperlink. Signed on 11/06/2018 by Magistrate Judge Mark D. Clarke. (rsm)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
MEDFORD DIVISION
JOHN ERIC SMITH,
Civ. No. 1:16-cv-00690-CL
Plaintiff,
ORDER ON POST-TRIAL
DAMAGES ISSUES
V.
UNITED STATES OF AMERICA,
Defendant.
CLARKE, Magistrate Judge.
This case comes before the court on two post-trial damages issues:(!) Is Defendant
United States of America ("Defendant" or "the United States") entitled to a set-off of any
amounts of the award for past reasonable medical expenses? And, (2) what is the proper
calculation of present value of the award for future medical expenses? 1 For the reasons below,
the Defendant is not entitled to a set-off of any portion of the award for past reasonable medical
1
In the Defendant's initial brief(#91), it also argued that if Mr. Smith were to stay on Medicaid,
his award for future medical expenses should be reduced to $0. Mr. Smith refuted the possibility
he would stay on Medicaid in his Response (#96). In its Reply (#103), the United States did not
address this issue. As such, the Comi finds that the United States has abandoned this argument
and the Court will not address it.
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expenses, and the present value of the award for future medical expenses is the amount of the
original award.
BACKGROUND
The factual background of this case is well-known to the parties, so the Court will briefly
summarize the relevant facts.
Plaintiff John Eric Smith ("Mr. Smith") suffered devastating injuries because of negligent
medical treatment that failed to timely diagnose his MRSA infection. The evidence at trial
showed that his past medical care resulted in $1,847,009.06 ofreasonable medical bills. Mr.
Smith was on Medicaid at the time of his injury, so he was not responsible for any out-of-pocket
costs associated with those bills. The State of Oregon holds a lien for $447,074.85, which
represents the amount actually paid by the Oregon Medicaid program administered as part of the
Oregon Health Plan for his medical care to date. The Oregon Health Authority oversees the
Plan. The balance of the medical expenses was written off by the medical providers likely based
on agreement for treating Medicaid patients. Mr. Smith will continue to need extensive medical
care for the rest of his life. The comi following trial entered Findings of Fact and Conclusions
of Law finding in favor of Mr. Smith and awarding the following damages: $1,847,009.06 in
past medical expenses; $3,800,000.00 in future medical expenses; and $7,000,000.00 in non
economic damages, for a total award of$12,647,009.06.
DISCUSSION
I. Mr. Smith is entitled to the amount of the lien held by the State of Oregon.
Under the Medicaid statutes, states are required to have individual Medicaid recipients
assign payments from any liable third party, which were already paid for tll1'ough Medicaid, to
the state. 42 U.S.C. § 1396a(25); § 1396k. In Oregon, ORS 659.830 and 743B.470 function to
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create an automatic right of assignment in such circumstances. According to the Declaration of
Jose Ybarra (#92), the Oregon Health Plan paid $447,074.85 of the total charges billed by
medical providers for Mr. Smith's care, and the state has a lien in that amount. The pmiies, and
the Court, agree that Mr. Smith is entitled to an award of past medical expenses in the amount of
the lien.
II. Is Defendant United States of America entitled to a deduction of Mr. Smith's written-off
medical expenses prior to entry of judgment in this case?
A. Medicaid
By way of background, Medicaid is a joint state and federal program through which the
federal government provides fw1ding to states to provide medical care to qualified indigent
individuals. 42 U.S.C. § 1396 et seq. The federal govermnent is required to reimburse states for
at least 50% of the costs incurred in providing patient care. § 1396d(b). In Oregon, the federal
government provides approximately 65% of the funding, while the state provides the remaining
35%. See Richard H. Mills Deel. (#93); Def.'s Post-Trial Mem., Ex. 1 ("West Repmi") at 4; 42
U.S.C. § 1396b; ORS chapter 414.
Unlike Medicare, which is funded by specific revenues, funding for Medicaid comes
from annual congressional appropriations of general revenues. 42 U.S.C. § 1396-1. In other
words, workers a11d employers contribute to a specific Medicare fund collected through payroll
taxes, held in trust, and then paid out to those individuals who contributed to the fund when they
become eligible. See West Report. Medicaid, on the other hand, is not funded by a specific trust
fund, and is instead considered "unfunded" because its funding comes from general revenues.
Id. Awards paid under the Federal Tort Claims Act ("FTCA"), 28 U.S.C. § 2674, are also paid
out of unfunded general revenues. US. v. Harue Hayashi, 282 F.2d 599, 603 (9th Cir. 1960).
B. The collateral source rule
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The majority of states, including Oregon, have adopted some form of the collateral
source rule, which provides "that if an injured pmiy received some compensation from a source
wholly independent of the tortfeasor, such compensation should not be deducted from what [the
injured party] might otherwise recover from the tortfeasor." Reinan v. Pacific Motor Trucking
Co., 270 Or. 208,213 (1974); see also White v. Jubitz, 347 Or. 212,237 (2009) ('"[t]he vast
majority of comis to consider the issue' follow the common-law rule articulated in section 924 of
the Restatement and permit plaintiffs to seek the reasonable value of their expenses without
limitation to the amount that they pay or that third parties pay on their behalf.") (emphasis in
original) (quoting Wills v. Foster, 892 N.E. 2d 1018, 1031 (Ill. 2008)). In those cases, an injured
plaintiff will often get "double recovery," or a windfall, unless a third-pmiy lien needs to be
satisfied. See White, 347 Or. at 219-20. The policy rational is often that the tortfeasor should not
benefit from the third-pm·ty payments. See id. The plaintiff will also have often paid premiU111s
for third pmiy insurance benefits that should not benefit the wrongdoer defendant. Id. at 220.
Finally, the rule is intended in part to deter wrongdoers. Gypsum Carrier, Inc. v. Handelsman,
307 F.2d 525,534 (9th Cir. 1962). There is some criticism of the rule as inconsistent with the
compensatory goal of tort law.
C. Mr. Smith is entitled to the full amount billed for past reasonable medical expenses.
The United States argues that the collateral source rule, as set fo1ih in ORS 31.580 does
not preclude a deduction of the written off medical expenses in this case for several reasons.
First, Plaintiff never incurred these written off medical bills because he was never liable for the
written-off amount. Second, defendant United States, as a significant contributor to the
Medicaid program as administrated by the Oregon Health Plan, is simply not a "third party
source wholly independent of the to1ifeasor." The United States argues that the collateral source
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does not even apply because of these first two points. Third, even if the collateral source rule
applies, Defendant argues that the written-off medical expenses can be deducted under ORS
31.580 because Medicaid, as opposed to Medicare, should not be considered a "federal social
security benefit" under ORS 31.580(1 )(d). Finally, the United States argues that not allowing a
deduction for the written-off medical expenses would be inconsistent with the FTCA because the
statute only allows compensatory damages.
Under the FTCA, comis are required to assess damages according to the law of the state
in which the tort occurred, which in this case is Oregon. See 28 U.S.C. § 1346(6); § 2674.
Therefore, the Comi turns to Oregon law to determine whether Mr. Smith may recover the
$1,399,934.21 difference between the $1,847,009.06 total awarded by this Court for past medical
expenses, and the lien amount of$447,074.85 for which Mr. Smith is liable to the State 2 •
Under ORS 31.710(2)(a), economic damages "means objectively verifiable monetary
losses including but not limited to reasonable charges necessarily incurred for medical ...
services[.]" (Emphasis added.) Defendant United States argues that, because Mr. Smith is not
liable for the write-off amount, he has not incurred the write-off amount, and therefore is not
entitled to recover that amount.
In White v. Jubitz, 347 Or. 212 (2009), the Oregon Supreme Comi, sitting en bane,
examined the meaning of "incurred" in the statute. The plaintiff in White received medical
treatment for an injury. Id. at 215. Medicare paid $13,400 of the approximately $37,600 total
for his medical care. Id. In accordance with the applicable Medicare laws, the providers
accepted the $13,400 as payment in full and wrote off the balance. Id. The question presented in
2
Although Defendant has not explicitly conceded this point, it is clear to the Court that this
amount represents the amount written off by the medical provider.
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that case was whether the plaintiff was entitled to recover the total amount of the medical
providers' reasonable charges or whether his recovery was limited to the amount that Medicare
paid to those providers.
In answering that question, the comi examined the collateral source rule in Oregon and
the meaning of"incur" in ORS 31.710. See White, 347 Or. 212. The court began by discussing
the history of the common law collateral source rule in Oregon, concluding that Oregon law had
traditionally allowed a plaintiff to recover from a defendant even when the plaintiff had already
received, or had a right to receive, benefits from a third patiy; i.e., a plaintiff was entitled to
receive a "double recovery." Id. at 219. The court then turned to ORS 31.580, Oregon's
statutory collateral source rule enacted in 1987, to see how it modified the common law rule. Id.
at 222-30. The court determined that ORS 31.580 gave courts discretion to deduct collateral
benefits from awards to plaintiffs, but that it specifically precluded the deduction of ce1iain
collateral benefits, including "federal Social Security benefits." Id. at 223. The court held that
"federal Social Security benefits" as used in the statute was comprehensive and included
Medicare benefits.
The defendant in White argued that, because neither the plaintiff nor Medicare ever
became liable for the written-off amount, it was never 'incurred' under ORS 31.710. The comi
disagreed:
A plaintiff who is injured and who obtains necessary medical treatment becomes
"liable or subject to" reasonable charges for that treatment and thereby "incurs"
them. ORS 31. 710 does not require that a plaintiff also pay or otherwise satisfy
those charges. Whether or by what means the plaintiff or a third patiy satisfies
medical charges is a matter between the plaintiff, the third party, and the medical
providers. ORS 31. 710 does not make a plaintiffs right to assert a claim for
economic damages against a tortfeasor dependent on those arrangements.
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White, 347 Or. at 234. Accordingly, the court held that the plaintiff was entitled to the entire
amount billed because (1) he had incurred the entire amount under ORS 31.710 and (2) the
write-off amount was a "federal Social Security benefit" exempt from deduction under ORS
31.580(l)(d).
Justice Kistler wrote a dissenting opinion, in which Justice Balmer joined. White, 347 Or.
at 244-57. Justice Kistler disagreed with the majority's interpretation of"incurred." Id. at 25052. He argued that, because the Medicare statutes capped the medical charges, any charges
above the Medicare cap-i.e., the written-off amount-were not actually "incurred." Id. at 252.
Additionally, he argued that any amounts awarded above the Medicare-capped charges were
"antithetical to the principle that 'a plaintiff should recover only such sums as will compensate a
plaintiff for the injury suffered as a result ofa defendant's wrong."' Id. at 251 (quoting Yamaha
Store ofBend, Oregon, Inc. v. Yamaha Motor Co1p., 310 Or. 333,344 (1990)) (emphasis in
original).
In Cohens v. McGee, 219 Or. App. 78 (2008), the court examined a similar situation, but
one in which the write-off amount was a result of Medicaid, not Medicare. In Cohens, the only
issue was whether the write-offs were also benefits from a federal Social Security program. Id.
at 81. The court held that "Medicaid, like Medicare, is a federal Social Security program, and,
pursuant to ORS 3 l.580(l)(d), a court may not reduce a plaintiffs award of damages by the
amount of write-offs that an injured party receives pursuant to Medicaid coverage." The United
States contends that Cohens was wrongly decided because the court failed to analyze the
difference between the funding for Medicare and Medicaid.
Application of White and Cohens to this case is not perfectly straightforward. In those
cases, the federal social security benefits that are not deductible under ORS 31.580 clearly came
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from third-party sources, not the defendant, making application of the collateral source rule
simple. In this case, in which the United States is the Defendant, it is not so clear that federal
Medicaid benefits are actually from a third party, and therefore subject to Oregon's statutory
collateral source rule. The United States says it already resolved Mr. Smith's medical expenses
as paii of its 65% contributions to the Oregon Health Plan, and, therefore, it would be unfair to
also require the United States to pay the written off amount. Mr. Smith ai·gues that the medical
expenses were resolved by the Oregon Health Plan, not the United States, and again points to
White and Cohens for the proposition that he is entitled to the full write-off amount by way of the
collateral source rule. The state also has a valid lien against a third paiiy- The United States.
In 2013, the Arizona district court examined a case with similar legal questions. See
Jacobs v. US., No. IO cv-0479 TUC AWT, 2013 WL 3282082 (D. Ariz.). In Jacobs, the
plaintiff brought an FTCA claim against the United States for injuries suffered in a traffic
collision. Id. at* I. The plaintiff asked for $493,878.80 in past medical expenses, which was
equal to the total amount billed. Id. at *10. Arizona's Medicaid agency paid $125,459.13, and
the remaining amounts were written off. Id. The court then turned to the issue of whether the
write-off amount should be regarded as having come from the defendant United States. Id. at
*12. The court reasoned that, "[i]n one sense, they have come from the United States because
as the Medicaid provider-it has negotiated discounted rates with healthcare providers." Id. But
in light of Arizona's broad application of the collateral source rule, the comi found that the write
offs were a collateral source because they were "not actually paid by the United States." Id.
The same is true in this case, and this Court comes to the same conclusion. Here, the
write-off amount was not paid by the Defendant; it was written off by the health care providers.
Furthermore, although the United States provides a portion of the funding for the Oregon Health
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Plan, it is this state-run program that actually makes the payments to providers, and it is the state
that holds a lien on those amounts paid in this case. These three facts individually, and
collectively, indicate that the Medicaid benefits, including the write-off amount, do not come
from the United States. Accordingly, the Court finds that the write-off amount is a collateral
benefit under ORS 31.580 and, as a federal Social Security benefit under ORS 31.580, cannot be
deducted from the damages awarded.
The United States final argument contends that the FTCA simply does not authorize any
damages that are not compensatory and that awarding the write-off amount, for which Mr. Smith
is not liable, makes them punitive in nature. The United States' argument is undermined,
however, by one of the cases to which it cites in its brief. "The government contends to not
deduct Medicare expenses from Siverson's award constitutes punitive damages because the
effect is a windfall double recovery for Siverson. The government's rationale would essentially
always find recovery from a collateral source to be "punitive" and ignores the collateral source
doctrine's purpose of preventing a windfall to the defendant." Siverson v. United States, 710
F.2d 557, 560 (9th Cir. 1983). Fmihermore, Oregon law under White has determined that
written-off amounts are "economic damages" under ORS 31.710(2)(a), and therefore not
punitive damages. Accordingly, awarding the write-off amount in this case does not convert the
award into an award of punitive damages.
In sum, under White, Mr. Smith is entitled to recover the full amount of the reasonable
medical bills he incurred, including all amounts written off. Under Cohens, write-offs that are
the result of Medicaid benefits are considered federal social security benefits under ORS
31.580(1)(d) and are therefore exempt from deduction as a collateral source. Finally, even
though the Defendant in this case is the federal government, the write-off is a collateral source
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because the benefit does not come from the Defendant, but instead from the state and the medical
providers. Accordingly, Mr. Smith is entitled to recover the full $1,847,009.06 billed in past
medical expenses.
The collateral source rule is well established law in Oregon. The fit to the facts in this
case for the reasons set forth above is less clear. Plaintiff sustained very serious injuries and as
reflected by the comis damage award, is entitled to significant damages.
The court however
respects the legal and policy arguments made by the United States as it relates to the large
medical expense write off on this case and whether Plaintiff should also in fairness recover those
sums in light of the comis damage award. This case presents a situation that the Oregon
Legislature may well want to analyze to determine if any amendments to ORS 31.710(2)(a)
and/or ORS 31.580 are appropriate.
III. Present value calculation of future medical expenses
Both parties submitted supplemental expe1i repmis to help this Comi dete1mine the
proper present value calculation of the approximately $3,800,000 award for future medical
expenses. As at trial, the Comi finds the qualifications, methodology, and calculations of both
experts to be creditable. That poses a difficulty for the Comi however, because the Defendant's
expert has calculated the present value of future medical expenses to be $2,841,883 (West Report
at 1), whereas Mr. Smith's expert has calculated the present value to be $3,979,782 (Pl.'s Resp.,
Ex. 3 ("Rubenson Report") at 3 (#91).)
Present value is calculated by finding the net discount rate, which is equal to the discount
rate (also known as the interest rate) minus the growth rate (also known as the inflation rate).
The Defendant's expe1i calculated the discount rate (3.7%) by using the 20-year historical
average on 10-year U.S. Treasury Notes and calculated the 20-year growth rates for various
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consumer price index categories that he determined best represented the items listed in life care
plans presented at trial. (West Report at 2.) Using these rates, the Defendant's expert calculated
the net discount rate for his chosen consumer price index categories. (Id at 3.) The majority of
these calculated rates were positive numbers, meaning that the discount rate was greater than the
growth rate for a given category. (Id.) A positive net discount rate results in a reduction of the
amount awarded.
Mr. Smith's expert used a similar methodology, but used different consumer price index
categories, and a different discount rate (3.3%) than Defendant's expe1i. (See Rubenson Repmi.)
Mr. Smith's expert also argued that the typical pattern of inflation rates being lower than interest
rates (thereby producing positive net discount rates, as Defendant's expert calculated) is actually
reversed "with most medical care items and personal care services." (Id. at 2.) This means,
according to Mr. Smith's expert, that the net discount rate for most medical care items and
personal care services would be a negative number. A negative net discount rate results in a
present value that is "greater than the simple sum of annual figures." (Id. at 3.) Mr. Smith's
expe1i's calculations do just that and come to an amount greater than that originally awarded by
the Court. (Id.)
Given that reasonable expe1is can disagree even as to whether the present value of Mr.
Smith's future medical expenses is greater than or less than the amount awarded in the Cami's
Findings of Fact and Conclusions of Law, the Comi finds that the original award amount of
$3,800,000 is a reasonable estimate of the present value of Mr. Smith's future medical expenses.
CONCLUSION
For the reasons above, Mr. Smith is entitled to $1,847,009.06 in past medical expenses
and $3,800,000 in future medical expenses.
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United States Magistrate Judge
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