In re K & L Auto Crushers, LLC

Supreme Court of Texas, No. 19-1022 (May 28, 2021)
Justice Boyd (Opinion, linked here), Justice Huddle Dissenting (linked here)

In 2018, the Texas Supreme Court ruled in In re North Cypress Medical Center that “the negotiated rates a medical provider charged to patients’ private insurers and public-entity payors [like Medicare and Medicaid] were relevant and discoverable on the issue of the reasonableness of the ‘full’ rates the provider charged to an uninsured patient for the same services.” That ruling came in the context of a lawsuit between an uninsured patient and a provider, regarding a medical lien for payment of invoices priced at those “full,” non-negotiated rates.

In K & L Auto Crushers, the Supreme Court extended that rule to personal-injury cases, holding that the same reasoning applies where a defendant seeks discovery of negotiated rates to test the reasonableness of the amounts charged to the plaintiff for medical care for which that plaintiff seeks to recover. The Court rejected arguments that such discovery could lead to a windfall for defendants and less than full recovery for plaintiffs who are contractually obligated to pay the “full” rates for his or her treatment, rather than the rates negotiated with insurers or public payors. So, even where a medical provider is not a party to a personal-injury case—unlike the situation in a medical-lien case like North Cypress, where the provider is a party—a defendant who contests the reasonableness of the medical expenses sought by the plaintiff, based on the provider’s actual charges to the plaintiff, may be able to secure discovery from the plaintiff’s medical provider regarding its negotiated rates for the same services, as well as its actual costs for those services.
The Court cautioned that the benefits of such discovery and the burdens on third-party medical providers will have to be carefully weighed in each case. Such rate and cost discovery should be allowed only if it is “proportional” to the case at hand. The Supreme Court noted, however, that “where a responding [provider’s] own conscious, discretionary decision, such as how it chooses to store and organize its materials, causes discovery to be burdensome, the burden is not considered ‘undue.’” Because the plaintiff in K & L Auto Crushers sought more than a million dollars in medical expenses, the Court had little difficulty concluding that appropriately tailored discovery requests, modeled on its North Cypress opinion, were proportional.
Recently-appointed Justice Rebeca Huddle filed a concurring opinion, joined by Justices Guzman and Bland, “to emphasize that the nonparty discovery the Court authorizes today will not be appropriate in every personal-injury case—or even as to every provider in a particular personal-injury case.” If trial courts fail to carefully and actively apply the “proportionality” requirement acknowledged by the majority, Huddle warned, “the potential systemic cost to health care providers [from this newly authorized discovery] becomes eye-popping.”
As confirmed by the numerous amicus submissions in this case, whether North Cypress would be extended to personal injury cases was much anticipated—or dreaded—by both sides of the personal-injury bar and by medical providers. Under the newly effective federal Hospital Price Transparency rules, 45 C.F.R. Part 180, many providers (but not all) are now required to retain and publicly disclose much of the pricing information sought in K & L Auto Crushers and North Cypress. Parties requesting such pricing data may well be required to look to such publicly available information before seeking it via discovery from nonparty providers. And that may take some of the sting out of the K & L ruling at least for providers and information subject to that new rule. On the whole, now that the Supreme Court has expressly extended North Cypress to personal-injury cases, the main discovery battleground between defendants and plaintiffs and their nonparty medical providers likely will be the “proportionality” of the requested discovery in each individual case and with respect to each individual provider.