Paid or Incurred: The Texas Rule That Surprises Out-of-State Lawyers

Counsel referring a Texas case from another jurisdiction usually adjusts quickly to the two-year limitations period and to proportionate responsibility. The rule that catches people is section 41.0105, and it moves case values more than either.

The statute

Recovery of medical or health care expenses is limited to the amount actually paid or incurred by or on behalf of the claimant.

The Texas Supreme Court settled the meaning in Haygood v. de Escabedo: only expenses the provider has a legal right to be paid are recoverable. Amounts written off under an insurer’s negotiated rate are not, and evidence of them is inadmissible.

So the collateral source rule survives in Texas only in a narrowed form. The existence of insurance stays out. The adjustment the insurance produced comes in — as a ceiling.

What it does to a file

A hospital bills $180,000. The health plan’s contracted rate is $42,000, which the hospital accepts as payment in full. The recoverable medical damages are $42,000, and the jury will never hear the larger number.

Where non-economic damages are argued by reference to medical specials — as adjusters routinely value them — that adjustment compounds through the whole valuation.

Letters of protection, and the argument they invite

Where a plaintiff treats on a letter of protection, the full billed charge is arguably incurred, because the provider retains a legal right to be paid it.

That produces a substantially larger specials figure, and it is why LOP treatment is common in Texas practice. It also invites the defense to attack the reasonableness of the charges, to probe the referral relationship between counsel and provider, and to argue the treatment was litigation-driven.

In re K & L Auto Crushers and the cases following it have made provider reimbursement rates and contractual arrangements discoverable in that situation. Counsel should expect that discovery rather than be surprised by it.

Practical consequences for a referring firm

• Evaluate on adjusted figures, not on billed charges. A file that looks like $200,000 of specials elsewhere may carry $50,000 here.
• Establish early how treatment is being funded — health insurance, PIP, letter of protection — because it changes the recoverable figure.
• Preserve the evidence of what was actually paid: explanations of benefits, provider ledgers, and remittance advice.
• Expect discovery into provider rates where LOP treatment is involved.

None of this makes Texas an unattractive venue. It makes early, accurate valuation harder, and it rewards counsel who ask about the billing before quoting a number to a client.