In August 2015, Daniel B. Scholle underwent elective back surgery at HCA-HealthONE, LLC, d/b/a Sky Ridge Medical Center (“the Hospital”). Drs. Ehrichs and Rauzzino performed Scholle’s surgery. During surgery, Scholle’s iliac vein was severed, resulting in extensive bleeding, and causing Scholle to go into cardiac arrest. The doctors eventually revived Scholle, repaired the severed vein by placing a stent, and finished the procedure. Scholle was then sent to the intensive care unit (“ICU”), where he remained for the next 100 days due to serious complications from the surgery, including an infection at the surgical site, which progressed to sepsis; injuries to his kidneys; an abdominal abscess; peritonitis; colon perforation; respiratory distress; stroke; foot drop; and gangrene in his toes requiring amputation. All parties agreed Scholle’s injuries were “catastrophic.”
The Hospital billed Scholle roughly $4.1 million for his care. At the time of his injuries, Scholle had insurance coverage from three different sources. The first was from his twenty years of service in the United States military, during which
he paid for benefits through the Veterans Administration/Tricare insurance program. After Scholle was honorably discharged from the military, he began working at Southwest Airlines—where he was working at the time of his
injuries—during which he contributed to a self-funded Employee Retirement Income Security Act (“ERISA”) program. His third source of insurance came from Medicare based on his payment of federal Social Security taxes. Together,
Scholle’s insurers paid the Hospital roughly $1.2 million, negotiating a nearly $3 million dollar discount to fully settle the amounts billed.
Based on his injuries, Scholle sued Dr. Ehrichs, Dr. Rauzzino, and the Hospital, alleging medical negligence. Within two months of filing the lawsuit, Scholle notified his insurers as required in medical malpractice actions under section 13-64-402(1) of the HCAA. None of his insurers filed notices of subrogation into the lawsuit. See § 13-64-402(2) (If a third party payer or provider has a right of subrogation, “[f]ailure to file such written notice shall constitute a waiver of such right of subrogation as to such action.”).
After a five-week trial, a jury found the Defendants negligent, apportioning 45% of the fault to Dr. Rauzzino, 40% to Dr. Ehrichs, and 15% to the Hospital. The jury awarded Scholle $9,292,887 in economic damages, $6 million of which it
attributed to Scholle’s past medical expenses.
Scholle moved to exceed the damages cap set forth in section 13-64-302(1)(b) of the HCAA, which generally limits the amount a prevailing plaintiff in a medical malpractice case may recover to $1 million. See § 13-64-302(1)(b). This provision of the HCAA affords a trial court broad discretion to award damages in excess of that limit if the plaintiff shows good cause that imposing the cap would be unfair. The Defendants argued that Scholle couldn’t establish good cause, instead urging the court to substantially reduce the jury’s award.
The trial court found that, under the totality of the circumstances, Scholle had shown good cause for lifting the cap. Specifically, the court found that:
- “credible, unrefuted evidence at trial” supported the $6 million awarded for Scholle’s past medical expenses;
- it would be “fundamentally unfair” to limit Scholle’s damages due to the “calamity” that occurred;
- Scholle’s past medical costs imposed a “significant financial burden” on his family, as he was the primary earner and supported two minor children at home;
- as a result of his permanent injuries, Scholle was forced to take an early medical retirement and would be unable to ever work again;
- Scholle could expect to see escalating medical costs throughout his life;
and - Scholle and his family “lack[ed] the means to earn sufficient income to repay his already-incurred medical costs.”
Additionally, the court observed that Scholle spent 100 days in the ICU following his surgery and was comatose during some of this time. The court also noted that Scholle was still under regular care for injuries he sustained from the surgery, including having undergone approximately twenty additional surgeries.
The Defendants objected to the trial court’s last finding, arguing that the court should have considered what amount of Scholle’s already-incurred $6 million in medical costs he was actually going to have to pay given his insurance coverage.
First, the Defendants pointed to the difference between the amount the Hospital billed Scholle, which was $4.1 million, and the amount his insurers ultimately paid on his behalf, which was just over $1.2 million. The nearly $3 million difference between the billed and paid amounts, the Defendants asserted, shouldn’t have been awarded to Scholle because he would never have to pay that amount.
Second, the Defendants argued that the trial court erred in failing to analyze the impact of the HCAA’s subrogation provision, § 13-64-402, on Scholle’s obligation to repay his insurers. In the Defendants’ view, Scholle’s insurers waived
their subrogation rights when they failed to file notices of subrogation into Scholle’s case. This meant, they claimed, that Scholle wasn’t going to be responsible for paying any of the $4.1 million the Hospital billed him, and this weighed against exceeding the HCAA’s $1 million cap.
Colorado Collateral Source Statute – Contract Exception
The Colorado Supreme Court stated in its April 22, 2024 Opinion: “Simply put, section 13-21-111.6, which is applicable to “any [tort] action . . . to recover damages,” requires a trial court to reduce a plaintiff’s damages by the amount they are compensated from collateral sources. Notwithstanding that direction, however, the General Assembly retained an
important component of the common law collateral source doctrine in section 13-21-111.6: the contract exception. It provides that a plaintiff’s verdict “shall not be reduced by the amount by which [the plaintiff] . . . has been or will be . . . indemnified or compensated by a benefit paid as a result of a contract entered into and paid for by or on behalf of” the plaintiff. § 13-21-111.6 (emphasis added). Most often, this “benefit” comes in the form of insurance coverage … unlike at common law, double recovery is generally avoided under the contract exception because a plaintiff must often reimburse their insurer, i.e., the party with whom they contracted, for the cost of treatment.”
“Scholle asserts that the division majority’s interpretation of the HCAA requires a trial court determining if good cause exists first, to consider collateral source payments made on a prevailing plaintiff’s behalf, and second, to determine
whether the plaintiff actually owes any money to that third-party. This, Scholle posits, impermissibly reduces his damages and allows Respondents, the tortfeasors who caused his injuries, to benefit from his years of paying insurance premiums. We agree. This court has long recognized that a tortfeasor is prevented from benefitting from collateral source payments made on a plaintiff’s behalf. Yet, by requiring that a trial court consider these very payments in medical malpractice cases, the division majority has adopted an interpretation of the HCAA that runs afoul of the contract exception to the collateral source statute because it allows the wrongdoer to “reap the benefit of a contract for which the wrongdoer paid no compensation.””
“The medical bills Scholle’s insurers paid, and the discounts they negotiated on his behalf, fall within the contract exception to the collateral source statute. Accordingly, the trial court properly disregarded those payments and discounts in determining whether application of the cap was unfair, instead appropriately focusing on Scholle’s medical expenses without regard to his insurance coverage. Regardless of the possibility or even likelihood of double recovery, a different approach would undermine the General Assembly’s demonstrated concerns regarding “fairness in damages awards” and its interest in ensuring that the “financial benefits of purchasing and maintaining health insurance” are not unjustly transferred to tortfeasors.”
“Here, there is no question that Scholle received benefits from his insurers. Recall that Scholle’s insurers negotiated an almost $3 million discount to settle the $4.1 million that the Hospital billed Scholle for his care. It’s settled law in Colorado that the contract exception protects such discounts … Because the contract exception encompasses these payments and discounts, we hold that the trial court was prohibited from considering them in its good cause analysis, as this determines a plaintiff’s overall recovery.”
The Colorado Supreme Court concluded: “We reverse the portion of the division’s judgment that concludes a trial
court may properly consider a prevailing plaintiff’s insurance contract liabilities as part of the court’s good cause and unfairness determinations under the HCAA. See Scholle, ¶¶ 124–26, 519 P.3d at 1115–16. In all other respects, we affirm the judgment of the court of appeals. Accordingly, we remand this case to the trial court to recalculate interest on the jury’s award and enter judgment in favor of Scholle and against the Respondents. On remand, a new good cause
determination is unnecessary because (1) the trial court properly refused to consider Scholle’s insurance contract liabilities; and (2) as the division majority concluded, the record supports the trial court’s application of the five remaining factors, id. at ¶¶ 112-13, 519 P.3d at 1113.”
Source Scholle v. Ehrichs, 2024 CO 22.
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