HOME MEMBERSHIP CALENDAR JUDICIAL COUNCIL 

FORMS KNOW YOUR 

JUDGES DAILY 

EBRIEFS LA LAWYER




    For Attorneys
    For the Public
    About Us
    Jobs
    LA County
    Bar Foundation
    Law Students
    My Account


LACBA on Facebook.
LACBA on Twitter.
LACBA on LinkedIn.



         
 

Los Angeles Lawyer

The Magazine of the Los Angeles County Bar Association


July/August 2012     Vol. 35, No. 5


 

MCLE Article: Collateral Evidence

After Howell, plaintiffs face significant limits on the introduction into evidence of the full billed amount of their medical expenses

By Mark V. Berry and Joyce M. Peim

Mark V. Berry is vice chairman/managing partner and Joyce M. Peim is senior counsel with Bowman and Brooke LLP in Los Angeles, where they defend motor vehicle manufacturers in product liability cases.


 
By reading this article and answering the accompanying test questions, you can earn one MCLE credit. To apply for credit, please follow the instructions on the test.
 

Years ago, medical billing and insurance were simple and straightforward. The patient paid the provider in full for services rendered and submitted a claim to the insurer, which usually reimbursed the patient 80 per cent of what the insurer deemed the "usual and customary" charge for the particular service. In recent years, however, rising costs have led to managed healthcare, in which the healthcare providers and patients both have contracts with managed care entities. In many cases the patient pays a relatively low amount (such as a copay or deductible) for a healthcare service, and the healthcare provider receives a contract payment from the managed care entity for the contract rate for services rendered.

This payment system has led to a widespread practice in which the contract rate that is actually paid to the healthcare provider is much lower than the rate that the provider claims is due. The difference between the claim and the contract rate can be dramatic.1 While a patient may view the lower contractual costs as a welcome relief, they prove problematic if a patient becomes a personal injury plaintiff. Lawyers for plaintiffs argue that the provider's higher billed rate is recoverable under the collateral source rule, but defense counsel challenge the validity of the billed rate as recoverable damages and argue in favor of the discounted rate.

In 1988 the Second District Court of Appeal set the standard on this issue, holding that the collateral source rule2 was not implicated by the discounted portion of the provider's fee. In other words, the personal injury plaintiff could only recover what his or her insurance company had actually paid the healthcare provider, since the patient-plaintiff was never obligated to pay the (higher) billed rate.3 Thus, under California law, the discounted portion of the medical fees did not constitute recoverable damages.4

Twenty years later the First, Third, and Fourth District upset the Second District's precedent and created a split of authority in California.5 The courts concluded that the discounted portion of the providers' fees was a collateral source benefit to the plaintiff and therefore the entire billed rate was recoverable as a past medical expense. Specifically, the courts found that the plaintiff obtained collateral benefits from not having to pay the providers' full charges, including noncash pecuniary considerations to the provider such as financial, administrative, and marketing savings that were financed by the plaintiff's premiums. The courts reasoned that these benefits required application of the collateral source rule in favor of the plaintiff. In an apparent nod to Hanif v. Housing Authority, one court found the requisite pecuniary detriment to the plaintiff in language appearing in the written consent for treatment, which arguably obligated the plaintiff to pay the providers' full charges under certain circumstances. Finally, the courts noted that only the legislature or the Supreme Court could carve further exceptions to the collateral source rule.6

Howell v. Hamilton Meats & Provisions, Inc.

In most cases, the difference between the billed rate and the discounted rate (known as the negotiated rate differential) is significant. According to one source, in California the difference between the billed rate and the negotiated rate exceeds $3 billion annually.7 For this reason, all eyes were on the California Supreme Court last August when it resolved the split of authority in Howell v. Hamilton Meats & Provisions, Inc.8 Howell has changed the landscape of personal injury litigation and currently governs the recovery of past medical expenses in personal injury litigation.

Howell holds that "an injured plaintiff whose medical expenses are paid through private insurance may recover as economic damages no more than the amounts paid by the plaintiff or his or her insurer for the medical services received or still owing at the time of trial."9 Howell adopts the reasoning of Hanif "that a plaintiff may recover as economic damages no more than the reasonable value of the medical services received and is not entitled to recover the reasonable value if his or her actual loss was less."10 Under Howell, a plaintiff may recover only the lesser of 1) the reasonable value of the services rendered or 2) the negotiated contract rate that the provider accepts as payment in full.

The Howell court made clear that its decision did not "abrogate or modify the collateral source rule" because the discounted medical rate "is not a benefit provided to the plaintiff in compensation for his or her injuries and therefore does not come within the rule."11 The court declined to definitively opine on whether gratuitously rendered medical services invoked the collateral source rule but stated that a provider's agreement to accept an insurer's contract rate is not a gift to the patient or to the insurer.12 Rather, providers receive commercial benefits (such as prompt payment) by accepting the contract rate.13 The supreme court also stated that its ruling did not result in underdeterrence or a windfall to the tortfeasor because the "complexities of contemporary pricing and reimbursement patterns for medical providers" made it difficult to conclude that the tortfeasor was not in fact remaining liable for the true full value of the provider's services.14

Howell acknowledges that subrogation clauses in insurance policies prevented a windfall, or double recovery, to the personal injury plaintiff.15 Thus, if the insured plaintiff prevails at trial, he or she will recover and retain any jury verdict for past medical expenses minus the sums paid by insurance. To ensure reimbursement from the proceeds of a jury verdict the insurer usually asserts a lien against any recovery obtained by the plaintiff. However, the usual practice is for the plaintiff's attorney to negotiate the lien. Thus, insured plaintiffs who incur liability for some portion (such as a copay) of their medical expenses will recover their actual out-of-pocket expenses and retain any additional negotiated portion of the insurance payment. But under Howell, a plaintiff who incurs no obligation to pay any portion of the medical expenses (such as the Medi-Cal plaintiff in Hanif or the workers' compensation plaintiff in Sanchez v. Brooke16) arguably will only retain the portion of the medical expenses that have been reduced by negotiation with the insurer. Significantly, Howell does not apply to uninsured patients, who stand to recover the full medical charges, subject to any lien asserted by the provider.

Howell makes clear that only evidence of the negotiated contract rate that was accepted as payment in full by the provider under a contract that prevented the provider from seeking any further payment from the patient is relevant and may be admissible at trial to prove past medical expenses.17 Conversely, the court held that evidence of the full billed amount "is not itself relevant on the issue of past medical expenses."18 The court also maintained in effect the inadmissibility of the fact that the payments were made by an insurance company.19

The IRS subscribes to the reasoning of the Howell and Hanif courts.20 In an Industry Director Directive, the IRS states, "Contractual allowance does not constitute bad debt, since the provider was never entitled to collect the difference under the terms of the relevant contract."21 This is a key factor in Hanif and Howell, in which the patients had no obligation to pay the purported full rate.

Evidentiary Tactics

Notwithstanding Howell, can evidence of the full rate be admitted as evidence for reasons other than to recover past economic damages? For example, personal injury plaintiffs often seek general damages, including damages for pain and suffering, as well as future medical expenses. Howell provides no guidance on the relevancy and admissibility of evidence of the provider's full charges as they apply to the plaintiff's general damages and future medical expenses.22 Until this issue is resolved, every personal injury case involving recovery of medical expenses will entail a battle regarding the admissibility--for purposes other than setting past medical expenses--of the full billed amount. Until there is appellate guidance on this issue, courts may decide to permit introduction of the full billed amount. For example, a court may decide that the reasonableness of the full medical charges is an issue because if the full past medical charges are inflated, so too will they be in the future when a plaintiff may need remedial medical care. Should evidence of the full charges be admitted for purposes other than past medical expenses, defense attorneys may seek special jury instructions to enforce the guidance of Howell.23

Plaintiffs' lawyers may also point to Greer v. Buzgheia24 to support the view that the full billed amount of medical care remains admissible for reasons other than proving past economic damages. The court of appeal in Greer stated that Nishihama v. City and County of San Francisco25 suggests that admitting the full billed amount would give the jury a "more complete picture" of the evidence surrounding a plaintiff's injuries. Notably, the Greer court would have followed Hanif and Nishihama and disallowed recovery of the full billed amount for past medical expenses. On that score, Greer would be consistent with Howell. However, the defendant's failure in Greer to require that the jury apportion a specific sum for past medical expenses resulted in a forfeiture of his ability to seek, via what is known as a Hanif motion, the postverdict reduction of the excessive award.

In the post-Howell world, defense counsel should fight to prevent introduction of the full billed amount for any purpose, but it is certainly possible that some trial courts will admit that evidence as being relevant to general damages or future medical costs. Any award of past damages that exceeds the contract rate would be contrary to the explicit holding of Howell, but the remedy for an excessive award of past medical expenses is no longer the posttrial motion procedure that evolved from Hanif. Howell rejects what it calls the "non-statutory ‘Hanif motion'" as being beyond the power of the trial courts.26 Instead, Howell holds that, if the jury returns a verdict for past medical expenses in excess of the discounted contract rate, the defendant's only remedy to reduce the award is a new trial on the grounds of excessive damages under Section 657 of the Code of Civil Procedure.

Confusion about applying Howell to the admissibility of the full amount of medical fees may result in excessive verdicts for past medical expenses and therefore an increase in successful motions for new trial. While it is true that the trial court can condition the grant of a new trial on a remittitur (that is, a new trial limited to the issue of damages will be awarded only if the plaintiff refuses to accept the negotiated contract rate as past medical expenses), Howell does not require a trial court to offer the plaintiff a remitted amount.

The potential for unnecessary retrials argues in favor of prohibiting admission of the full billed amount for any reason. The defense bar may point out that the admission of the billed amount could easily confuse and mislead the jury as to the proper measure not only of a plaintiff's past medical expenses but also general damages and future expenses. If the provider's full charges are admitted as relevant to general damages and future medical expenses, and those charges are inflated or unreasonable, that evidence can easily taint the jury's award of general damages and future medical costs. As the Howell court noted, "[I]t is not possible to say generally that providers' full bills represent the real value of their services, nor that the discounted payments they accept from private insurers are mere arbitrary reductions."27

Further, it should be noted that plaintiffs could potentially waive the benefits of the collateral source rule. If the provider's full charges are introduced as relevant to general damages, the defense may attempt to introduce evidence of the plaintiff's health insurance to establish the discounted contract rate as a more reasonable assessment of the plaintiff's general damages and pain and suffering. The supreme court has acknowledged the danger of admitting evidence of collateral source payments but allows for its admission "upon a persuasive showing that the evidence sought to be introduced is of substantial probative value."28 Evidence of the sharply reduced contract rate does indeed have "substantial probative value" if evidence of the full rate is admitted for any relevant purpose.29

Changes to Discovery

Howell has also affected the practice of pretrial discovery. Careful litigants will find it prudent in the post-Howell world to engage in more detailed third-party discovery with healthcare providers and insurers or managed care plans. As before, defendants will be able to ascertain through form interrogatories and basic requests for production to the plaintiff whether or not health insurance or a managed care plan is responsible for payment of the provider's bills. The best source of this information will be the contracts of the insurers or managed care plans, which usually are not parties to the action. Therefore, barring stipulations or voluntary production, the defendant will need to issue deposition subpoenas for production of business records. If this does not result in the production of the pertinent contracts, the defense can depose the person most qualified on behalf of the insurer or managed care plan regarding the existence of the contracts and simultaneously or thereafter seek production of the contracts identified in the deposition.

These contracts generally contain confidentiality and nondisclosure clauses, so the requesting party can expect objections that the documents sought are proprietary. The third-party insurer or managed care plan may well seek a protective order. If the plaintiff does not challenge the production, a stipulated protective order maintaining the confidentiality of the contracts will be the easier route to take. Should the contracts be produced pursuant to protective order, the terms of the protective order must be followed when the contracts are being used to enforce Howell, such as via a motion in limine.

In order to prevail on an in limine motion, the defense will need to demonstrate through competent, admissible evidence that the provider accepted discounted rates as payment in full for services rendered to the plaintiff pursuant to contracts under which the plaintiff cannot be held liable for any sums over the contract rate. Finally, the actual sum accepted by the provider under the contract, and any amount still owing under the contract, must be obtained so that Howell's evidentiary rulings regarding past medical expenses can be realized.

To prevent a wasteful retrial, defendants should seek an order in limine to exclude any evidence of medical expenses above the negotiated contract rate. This can be accomplished by producing competent evidence that satisfies the criteria established in Howell. If granted, the motion in limine will allow the jury to hear evidence of the discounted contract rate only regarding past medical expenses. If this happens, the jury should not return a verdict for past medical expenses in a higher amount. A special verdict form that clearly distinguishes past medical expenses is required. Conversely, a plaintiff can move in limine to exclude evidence of the negotiated contract rate if competent, admissible evidence establishes that the Howell factors are not satisfied, or if no evidence was elicited prior to the discovery cutoff.

It is possible that the effects of Howell may be short-lived. State Senator Darrell Steinberg responded to the Howell decision by proposing SB 1528, which was sponsored by the Consumer Attorneys of California. Introduced in February, this measure sought to entitle the personal injury plaintiff "to recover the reasonable value of medical services provided without regard to the amount actually paid." As proposed, this bill would add to each personal injury trial a minitrial in which the jury would be called upon to decide the reasonable value of the medical services rendered to the plaintiff, undoubtedly basing its decision upon conflicting expert opinion. A contrary opinion on how to value medical services was espoused by Justice Harry Hull in his dissenting opinion in King v. Willmett, in which he notes that it makes more sense that a "determination of the reasonable cost of medical services ultimately should rest with the two parties with the most sophistication in the matter: the health care provider and the health care insurer."30 However, recent amendments have effectively gutted the original language overruling Howell that appeared in Steinberg's bill.31

The collateral source rule reflects the public policy that a torfeasor "should not be able to avoid payment of full compensation for the injury inflicted merely because the victim has had the foresight to provide himself with insurance."32 Those on the defense side would argue that Howell does not permit a tortfeasor to escape compensating a plaintiff for the full amount of past medical expenses for which the plaintiff is personally liable, because the plaintiff still recovers the full contract rate, even though the plaintiff incurred significantly less, or no, out-of-pocket medical expenses. That damages, to be recoverable, must consist of actual pecuniary detriment is deeply rooted in California jurisprudence. So too is the collateral source rule. These well-settled laws are justly harmonized under Howell.

 

Endnotes

1 See Olsen v. Reid, 164 Cal. App. 4th 200, 202 (2008) (reduction of more than 91%); Cabrera v. E. Rojas Props., Inc., 192 Cal. App. 4th 1319, 1322 (2011) (more than 85%); People v. Bergin, 167 Cal. App. 4th 1166, 1168 (2008) (more than 84%).
2 Helfend v. Southern Cal. Rapid Transit Dist., 2 Cal. 3d 1, 6 (1970). Under the collateral source rule, the injured plaintiff can recover his or her proven losses despite reimbursement for those losses in whole or in part from a source other than the tortfeasor. The rule "embodies the venerable concept" that the tortfeasor should not benefit from the plaintiff's providence in procuring insurance or some other type of collateral payment. Id. at 9-10.
3 Hanif v. Housing Auth., 200 Cal. App. 3d 635 (1988).
4 Civ. Code §§3281, 3282, 3333, 1431.2.
5 Howell v. Hamilton Meats & Provisions, Inc., 101 Cal. Rptr. 3d 805 (2009), reversed and remanded, 52 Cal. 4th 541 (2011); Yanez v. SOMA Envtl. Eng'g, Inc., 111 Cal. Rptr. 3d 257 (2010), vacated and transferred to First District for reconsideration under Howell; King v. Willmett, 113 Cal. Rptr. 3d 742 (2010), vacated and transferred to Third District for reconsideration under Howell.
6 See Civ. Code §3333.1 (abrogating collateral source rule in medical malpractice cases) and Gov. Code §985 (permitting public entity to request postverdict hearing for reduction of portion of verdict representing collateral source payments greater than $5,000).
7 See Bob Tyson, Insurance Companies Dodge Billion-Dollar Bullet in California, Insurance Journal, Feb. 21, 2012, http://www.insurancejournal.com/news/west/2012/02/21/236381.htm. Tyson represented Hamilton Meats & Provisions, Inc., before the California Supreme Court.
8 Howell, 52 Cal. 4th 541.
9 Id. at 566.
10 Id. at 555 (citing Hanif v. Housing Auth., 200 Cal. App. 3d 635, 641 (1988)).
11 Id. at 567.
12 Id. at 558.
13 Id.
14 Id. at 560-62.
15 Id. at 551 (citing Helfend v. Southern Cal. Rapid Transit Dist., 2 Cal. 3d 1, 10 (1970)).
16 Sanchez v. Brooke, 204 Cal. App. 4th 126 (2012). See also Lab. Code §3751(b) (A healthcare provider may not seek payment from an injured employee.); Lab. Code §4600 (The employer pays for the injured employee's medical expenses.); Lab. Code §3751(a) (prohibiting employee contributions to procurement of workers' compensation insurance).
17 Howell, 52 Cal. 4th at 565-67.
18 Id. at 567.
19 Id.
20 See Industry Director Directive on Contractual Allowance Issues in the Healthcare Industry, LMSB-04-0807-056 (Sept. 10, 2007), available at http://www.irs.gov/businesses/article/0,,id=174275,00.html.
21 Id.
22 Howell v. Hamilton Meats & Provisions, Inc., 52 Cal. 4th 541, 567 (2011).
23 See Elisabeth Frater, Special Instructions, Los Angeles Lawyer, Apr. 2012, at 25.
24 Greer v. Buzgheia, 141 Cal. App. 4th 1150 (1960).
25 Nishihama v. City and County of San Francisco, 93 Cal. App. 4th 298 (2001).
26 Howell, 52 Cal. 4th at 567.
27 Id. at 562
28 Hrnjak v. Graymar, Inc., 4 Cal. 3d 725, 733 (1971).
29 See id. and note 1, supra.
30 King v. Willmett, 113 Cal. Rptr. 3d 742, 759 n.3 (Hull, J., dissenting).
31 See legislative information on SB 1528, Damages: Medical Services, available at http://leginfo.legislature.ca.gov/faces/home.xhtml.
32 Helfend v. Southern Cal. Rapid Transit Dist., 2 Cal. 3d 1, 10 (1970).

 


EARN MCLE CREDIT:
By reading this article and answering the accompanying test questions, you can earn one MCLE credit.

 
 

Copyright 2012, Los Angeles Lawyer magazine. All Rights Reserved.

   
Los Angeles Lawyer
 
 
 
 
       
   
General Information
 
 
 
 
 
 
 
 
       
   
 
 
 
Online MCLE
 
 
 
 
Plus: Earn MCLE Credit