By Kelsey Mellan

On October 7, 2016, the Fourth Circuit issued a published opinion in Simms v. United States, a civil case involving the application of the collateral source rule to damages awarded to Misty Simms (“Simms”), a mother who brought this wrongful birth action against the United States under the Federal Tort Claims Act (“FTCA”). The United States appealed the award of damages to Simms based on the collateral source rule. The Fourth Circuit affirmed in part, vacated in part, and remanded for future proceedings consistent with its opinion.

Facts and Procedural History

 During her pregnancy, Simms received prenatal healthcare from a West Virginia federally-supported healthcare center, Valley Health Systems, Inc. (“Valley Health”). On February 25, 2008, when Simms was 18 weeks pregnant, she had an appointment at Valley Health in which her physician performed a routine ultrasound. The physician detected “potential fetal abnormalities” but did not inform Simms of these abnormalities until three months later in May 2008. During her next few appointments at Valley Health, physicians told Simms that the fetus’s brain was substantially underdeveloped and if the baby was not stillborn, he would likely be severely mentally disabled and be unable to walk or talk. By the time Simms learned of these fetal abnormalities, it was too late in West Virginia and the surrounding states to legally terminate her pregnancy. Simms gave birth to her son, C.J., on June 18, 2008. As expected, he suffered severe brain damage and multiple related developmental and muscular conditions. C.J. lives in a persistent “vegetative state” and requires 24-hour care and monitoring. The extraordinary medical bills resulting from C.J.’s condition have been paid by the West Virginia’s Medicaid program.

Simms filed this wrongful birth lawsuit against the U.S. (because Valley Health is federally funded) on November 21, 2011 in the District Court for the Southern District of West Virginia. Because this case arose at a federally-funded facility, Simms sought relief under the FTCA. In West Virginia, the failure of a healthcare provider to discover a birth defect and to advise the parents of its consequence will give rise to a cause of action for “wrongful birth.” The district court found the U.S. liable under the FCTA because Valley Health’s failure to inform Simms of the fetal abnormalities proximately caused Simms to remain uniformed of the condition, preventing her from exercising her right to terminate the pregnancy. The district court awarded Simms a total of $12,222,743.00 distributed for past and future billed medical expenses, lost income, and non-economic damages.

In this appeal, the government did not challenge the court’s liability determination. Rather, the government challenged the following: (1) Simm’s right to recover past medical expenses in light of payment by Medicaid, (2) the calculation of the medical damage amounts, and (3) the district court’s failure to hold a collateral source hearing.

Collateral Source Rule: Past Medical Expenses

The government first argued that Simms did not have a right to recover past medical expenses in light of C.J.’s Medicaid coverage. Simms had not to paid any out-of-pocket expenses for C.J.’s medical care. The government contended that awarding Simms damages related to medical costs that she did not personally incur would contravene the tort principle of damages only compensating for the harm caused.

The Fourth Circuit was not persuaded by this argument. In West Virginia, a parent who successfully brings a wrongful birth claim is entitled to compensation for the extraordinary costs for rearing a child with birth defects, including medical and educational costs, as well as medical and support costs, after the child reaches the age of majority. However, the fact that Simms had not paid out-of-pocket expenses for C.J.’s medical care does not preclude recovery because of the collateral source rule, which has been long-recognized in West Virginia. The Fourth Circuit relies heavily on the Supreme Court of Appeals of West Virginia’s decision, Kenney v. Liston, which defines the collateral source rule as, “protecting payments made to or benefits conferred upon an injured party from sources other than the tortfeasor by denying the tortfeasor any corresponding offset or credit against the injured party’s damages.” In Kenney, the court specifically stated that the collateral source rule protects Medicaid payments. Therefore, the government was not entitled to a credit or offset against Simm’s damages based on Medicaid’s payment of the medical expenses. Therefore, the Fourth Circuit rejected the government’s first argument.

 Error in Past Medical Expenses Calculation

 The government’s second contention was that, even if the collateral source rule applied, the district court erred in calculating Simms’ damages award because the court used the amount the medical providers billed for C.J.’s care, rather than the amount Medicaid actually paid. C.J.’s medical providers accepted discounted reimbursement rates as a condition of participation in the Medicaid program rather than a private insurance plan. Medicaid therefore paid the medical providers less than what was originally billed, but the district court calculated the damages awards using the billed amounts. The government argued that Simms should only be reimbursed for the discounted amount paid by Medicaid, rather than the amount originally billed.

Again relying on Kenney, the Fourth Circuit decided that the collateral source rule applies to any benefit received by a plaintiff from any source in line with plaintiff’s interest – including discounted rates negotiated by payers. Furthermore, the West Virginia collateral source rule does not distinguish between benefits conferred by public and private entities. Therefore, the Fourth Circuit held that district court did not err in calculating Simms’ damages award using the amount C.J.’s medical providers billed the Medicaid program.

Collateral Source Hearing

 The government’s final (and only successful) contention was that the district court erred in refusing to reduce the damages award under the provisions of West Virginia’s Medical Professional Liability Act (“Act”). Under this Act, the collateral source rule is modified in the context of medical professional liability actions, like the one at issue here. The Act entitled a defendant to a post-verdict, prejudgment hearing regarding payments received by the plaintiff from collateral sources. W. Va. Code § 55-7B-9a(a). At the hearing, if the court finds that certain statutory preconditions are met, the defendant can present evidence of future payments from collateral sources. The court can then reduce the economic damages award by the net amount of collateral source payments received by the plaintiff before entering judgment. The court may not reduce awards with respect to any amounts “which the collateral source has a right to recover from the plaintiff through subrogation, lien, or reimbursement.” Id. § 55-7B-9a(g)(1). Medicaid payments similarly qualify as collateral source payments under the Act. Id. § 55-7B-2(b).

In the instant case, the district court did not hold a collateral source hearing before it entered judgment. Rather, the court held that the Act did not entitle the government to any damages reduction because the Medicaid program has a subrogation lien against any verdict in Simms’ favor. However, the district court did not explain its basis for concluding that the Medicaid program holds a subrogation lien against Simms’ judgment. The parties disputed the status of this lien. Therefore, the Fourth Circuit decided a collateral source hearing is necessary to clarify the issue of the lien and to determine whether three statutory preconditions were met before the court entered judgment. The preconditions include: (1) there is a preexisting contractual or statutory obligation on the collateral source to pay the benefits; (2) the benefits, to a reasonable degree of certainty, will be paid to the plaintiff for expenses the trier of fact has determined the plaintiff will incur in the future; and (3) the amount of the future expenses is readily reducible to a sum certain.

Disposition

The Fourth Circuit vacated the district court’s judgment solely with respect to damages awarded for past and future medical expenses and remanded the case to the district court so that it may hold a collateral source hearing. The Fourth Circuit affirmed the remainder of the district court’s decision.

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