Pending Decision May Influence Measure of Medical Damages

Measuring the extent of medical damages, for a medical malpractice claim as for any other type of negligence claim, is an important part of any case. Normally, when a defendant causes harm that sends a plaintiff to a hospital or doctor, three different measures may be relevant to determining the defendant's liability ' the amount the plaintiff herself has paid for medical care, the amount the plaintiff's health insurance has paid on her behalf, and the amount a health care provider has billed as its “usual and customary” charge.

The first amount is not controversial because a plaintiff is, of course, entitled to be compensated for any reasonable out-of-pocket expenses. The second amount, too, is usually not in dispute; it is generally agreed that a defendant is also liable for medical expenses the plaintiff did not pay, but which were instead paid by her health insurance carrier. That additional recovery is the result of the common-law collateral source rule, although many states have modified the rule by statute to reduce such recoveries. As stated by the California Supreme Court, the collateral source rule provides that “if an injured party receives some compensation for his injuries from a source wholly independent of the tortfeasor, such payment should not be deducted from the damages which the plaintiff would otherwise collect from the tortfeasor.” Helfend v. Southern Cal. Rapid Transit Dist. (1970) 2 Cal.3d 1, 6.

But, what about the third amount? Does the collateral source rule make the defendant liable not only for medical expenses that the plaintiff's insurance carrier has paid on her behalf, but also for additional amounts that neither the plaintiff nor the insurance carrier (nor anyone else) has paid or ever will pay?

A Pending Case

A case pending in the California Supreme Court (Howell v. Hamilton Meats & Provisions Inc., review granted March 10, 2010, California Supreme Court no. S179115) is shining a spotlight on the question of the proper measure of damages for medical treatment of a plaintiff's tortiously caused injuries. The case involves injuries from a traffic accident and concerns a big-money issue, though, paradoxically, no health care provider is a party to the action and the court's decision will not affect how much California health care providers are actually paid. The case's outcome could affect the recoveries of California plaintiffs who have suffered physical harm due to negligence, though not in the medical malpractice arena, as California's medical malpractice tort reform statute, the Medical Injury Compensation Reform Act (1975) (MICRA), has already altered the collateral source rule in medical malpractice cases. The statute allows a defendant to introduce evidence of certain types of collateral source payments that the plaintiff received, on the assumption (although not the requirement) that the jury will reduce the plaintiff's award accordingly.

The case could be significant, however, in its potential impact on those jurisdictions that have yet to decide this issue, either by statute or through state Supreme Court opinion. Indeed, the California Medical Association, California Dental Association, and California Hospital Association all agree that Howell is directly relevant to recovery of health care costs as tort damages, as they indicate in their amicus brief, stating, “After all, health care providers provide the medical care that is the whole point of the two questions that are presented in this case.”

At trial in Howell, the jury returned a verdict for the plaintiff of $689,978, of which $189,978 was for “[p]ast economic loss, including medical expenses.” On the defendant's post-trial motion, the amount of the judgment was reduced by $130,286, from $689,978 to $559,691. The California Court of Appeal, 4th District, disagreed with the reduction and held that the tortfeasor's liability to the plaintiff for medical expenses was the total amount charged by the medical providers as their usual and customary rates. Howell v. Hamilton Meats & Provisions, Inc. (2009) 179 Cal.App.4th 686. On appeal, the State Supreme Court has been asked to answer the question: Is the plaintiff entitled to recover the “usual and customary charges” her health care providers unilaterally “billed,” even though the providers have accepted much less than those charges as full payment for her medical services under health services contracts the providers negotiated with her insurance carrier?

An Important Issue

Considering the volume of personal injury claims and lawsuits in California, the collective amount of money riding on the court's decision in Howell is enormous.

The difference between what a health care provider bills and what it agrees to accept as full payment for medical services can be dramatic. One federal appeals court has recognized the reality that, “in a world in which patients are covered by Medicare and various other kinds of medical insurance schemes that negotiate rates with providers, providers' supposed ordinary or standard rates may be paid by a small minority of patients.” Vencor Inc. v. National States Ins. Co. (9th Cir. 2002) 303 F.3d 1024, 1029, fn. 9; see Nation, Obscene Contracts: The Doctrine of Unconscionability and Hospital Billing of the Uninsured (2005) 94 Ky. L.J. 101, 104 (Labeling hospital charges as “'regular,' 'full,' or 'list' [is] misleading, because in fact they are actually paid by less than five percent of patients nationally”).

A commentator has noted that a “5 to 1 ratio between amount billed and the amount paid ' is not unusual. The amount paid by third party payers is typically only a small fraction of the amount originally billed by medical care provide[r]s.” Ireland, The Concept of Reasonable Value in Recovery of Medical Expenses in Personal Injury Torts (2008) 14 J. Legal Econ. 87, 88. In the Howell case itself, the plaintiff, seeking recovery of her healthcare providers' “usual and customary” charges wants her medical expense damages to be more than tripled, from under $60,000 ' the amount the providers accepted as full payment ' to almost $190,000. Until the intermediate appellate court's decision in Howell last year, the California Courts of Appeal (starting with Hanif v. Housing Authority (1988) 200 Cal.App.3d 635) had consistently held that claims like the Howell plaintiff's were overreaching. The Hanif court agreed that the plaintiff there could recover as damages those medical expenses paid by a collateral source ' in that case, Medi-Cal ' but held that any award above “the actual amount paid” by the collateral source was “overcompensation.” Id. at pp. 639, 641, 643-644. The court in Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th 298, 306, later applied Hanif where the collateral source paying for the medical care was private health insurance. So did the court in People v. Millard (2009) 175 Cal.App.4th 7, 27, a crime victim restitution case.

A Windfall for Plaintiffs?

The plaintiff's theory in Howell is contrary to a common-sense interpretation of the collateral source rule.

In stating the collateral source rule, the California Supreme Court has focused on ensuring that tort damages include compensation paid to or on behalf of a plaintiff by a collateral source. For example, the court in the leading Helfend case said that “payment” by a collateral source should not be deducted from a plaintiff's damages. However, an amount that a health care provider may have unilaterally stated on its bill as “usual and customary charges” ' over and above what the provider had contracted to accept as full payment from a plaintiff's health insurer ' is not a “payment.” That amount was not paid by anyone.

Now, let us look at it from the plaintiff's side. Underlying the desire to award more than actual payments made by a collateral source is a feeling that, by not doing so, courts would somehow shortchange plaintiffs and allow defendants to get away with not paying for all the detriment they caused. Advocates of this position say the additional damages are necessary to fulfill the collateral source rule's principles “that a person who has invested years of insurance premiums to assure his medical care should receive the benefits of his thrift [and that] [t]he tortfeasor should not garner the benefits of his victim's providence.” Helfend, supra, 2 Cal.3d at pp. 9-10. With this principle in mind, the lower court in Howell concluded that the plaintiff, “as a person who has invested insurance premiums to assure her medical care, should receive the benefits of her thrift; and [the defendant], as the party liable for [the plaintiff's] injuries, should not garner the benefits of [the plaintiff's] providence.” Howell v. Hamilton Meats & Provisions Inc. (2009) 179 Cal.App.4th 686, 700.

However, a plaintiff does receive the benefits of her thrift without collecting the so-called “usual and customary” charges billed by her health care providers. She is receiving the benefits of her investment in health insurance because she is recovering the amounts that her insurer paid on her behalf. If she were not receiving the benefits of her thrift ' or, in other words, if the defendant were garnering the benefits of the plaintiff's providence ' she would recover as damages only the amount that she herself had paid to the health care providers and not any payments made by her insurer.

When a health care provider has agreed with the plaintiff's health insurance carrier to prices lower than the provider's “usual and customary” charges, it does not constitute a benefit to the plaintiff. If there is a benefit to anyone from this transaction, it is to the insurance carrier. By paying less for the medical services provided to its insureds, the carrier's overall costs are lowered. For the insured, on the other hand, all that matters is that her treatment is being paid for by her carrier. The price that the carrier pays, whether high or low, is of little consequence to her.

The lower costs might allow the carrier to reduce its premiums, but that is not a benefit under the collateral source rule. The rule applies only when “an injured party receives some compensation [from a collateral source] for his injuries.” Helfend, supra, 2 Cal.3d at p. 6. An insured “receives” the benefit of a lower premium not as an injured party and not for an injury, but before, and unconnected to, any injury or medical treatment.

Including in recoverable damages the actual payments made by a collateral source gives a plaintiff, not the defendant, “the benefits of her thrift.” On the other hand, allowing additional recovery of “usual and customary” charges that no one pays surely creates a windfall for plaintiffs and their lawyers. In California, at least, damages awarded for additional amounts “billed” by health care providers will not actually go to the healthcare providers. Instead, the money will go only to plaintiffs and their attorneys. This is because providers do not collect any more than the amounts they have agreed to accept from plaintiffs' health insurance as full payment. See Parnell v. Adventist Health System/West (2005) 35 Cal.4th 595, 609.

Thus, under the Howell plaintiff's proposed rule, her health care providers will still get no more than the amount they negotiated with her health insurer, but she will recover as damages the larger amounts “billed” by the providers even though neither she nor anyone else has paid, or ever will pay, the “bill.” And that recovery will be on top of what she already will have recovered under the traditional collateral source rule for the amounts her insurer actually did pay to the providers. This is a windfall under any definition of the word.

Conclusion

Not long ago, a different plaintiff laid claim to compensation for what she asserted were two separate types of collateral source benefits. The California Court of Appeal there, however, rejected the attempt to recover for both. Relying on “equity and common sense,” the court reasoned that, although it was acceptable for the collateral source rule to “result in a double recovery,” there was “no reason to award yet another level of recovery.” Rotolo Chevrolet v. Superior Court (2003) 105 Cal.App.4th 242, 247, 248. Similarly, when a plaintiff is already being awarded damages for collateral source payments made by her health insurance, “equity and common sense” counsel against giving her “yet another level of recovery.”

Measuring the extent of medical damages, for a medical malpractice claim as for any other type of negligence claim, is an important part of any case. Normally, when a defendant causes harm that sends a plaintiff to a hospital or doctor, three different measures may be relevant to determining the defendant's liability ' the amount the plaintiff herself has paid for medical care, the amount the plaintiff's health insurance has paid on her behalf, and the amount a health care provider has billed as its “usual and customary” charge.

The first amount is not controversial because a plaintiff is, of course, entitled to be compensated for any reasonable out-of-pocket expenses. The second amount, too, is usually not in dispute; it is generally agreed that a defendant is also liable for medical expenses the plaintiff did not pay, but which were instead paid by her health insurance carrier. That additional recovery is the result of the common-law collateral source rule, although many states have modified the rule by statute to reduce such recoveries. As stated by the California Supreme Court, the collateral source rule provides that “if an injured party receives some compensation for his injuries from a source wholly independent of the tortfeasor, such payment should not be deducted from the damages which the plaintiff would otherwise collect from the tortfeasor.” Helfend v. Southern Cal. Rapid Transit Dist. (1970) 2 Cal.3d 1, 6.

But, what about the third amount? Does the collateral source rule make the defendant liable not only for medical expenses that the plaintiff's insurance carrier has paid on her behalf, but also for additional amounts that neither the plaintiff nor the insurance carrier (nor anyone else) has paid or ever will pay?

A Pending Case

A case pending in the California Supreme Court (Howell v. Hamilton Meats & Provisions Inc., review granted March 10, 2010, California Supreme Court no. S179115) is shining a spotlight on the question of the proper measure of damages for medical treatment of a plaintiff's tortiously caused injuries. The case involves injuries from a traffic accident and concerns a big-money issue, though, paradoxically, no health care provider is a party to the action and the court's decision will not affect how much California health care providers are actually paid. The case's outcome could affect the recoveries of California plaintiffs who have suffered physical harm due to negligence, though not in the medical malpractice arena, as California's medical malpractice tort reform statute, the Medical Injury Compensation Reform Act (1975) (MICRA), has already altered the collateral source rule in medical malpractice cases. The statute allows a defendant to introduce evidence of certain types of collateral source payments that the plaintiff received, on the assumption (although not the requirement) that the jury will reduce the plaintiff's award accordingly.

The case could be significant, however, in its potential impact on those jurisdictions that have yet to decide this issue, either by statute or through state Supreme Court opinion. Indeed, the California Medical Association, California Dental Association, and California Hospital Association all agree that Howell is directly relevant to recovery of health care costs as tort damages, as they indicate in their amicus brief, stating, “After all, health care providers provide the medical care that is the whole point of the two questions that are presented in this case.”

At trial in Howell, the jury returned a verdict for the plaintiff of $689,978, of which $189,978 was for “[p]ast economic loss, including medical expenses.” On the defendant's post-trial motion, the amount of the judgment was reduced by $130,286, from $689,978 to $559,691. The California Court of Appeal, 4th District, disagreed with the reduction and held that the tortfeasor's liability to the plaintiff for medical expenses was the total amount charged by the medical providers as their usual and customary rates. Howell v. Hamilton Meats & Provisions, Inc. (2009) 179 Cal.App.4th 686. On appeal, the State Supreme Court has been asked to answer the question: Is the plaintiff entitled to recover the “usual and customary charges” her health care providers unilaterally “billed,” even though the providers have accepted much less than those charges as full payment for her medical services under health services contracts the providers negotiated with her insurance carrier?

An Important Issue

Considering the volume of personal injury claims and lawsuits in California, the collective amount of money riding on the court's decision in Howell is enormous.

The difference between what a health care provider bills and what it agrees to accept as full payment for medical services can be dramatic. One federal appeals court has recognized the reality that, “in a world in which patients are covered by Medicare and various other kinds of medical insurance schemes that negotiate rates with providers, providers' supposed ordinary or standard rates may be paid by a small minority of patients.” Vencor Inc. v. National States Ins. Co. (9th Cir. 2002) 303 F.3d 1024, 1029, fn. 9; see Nation, Obscene Contracts: The Doctrine of Unconscionability and Hospital Billing of the Uninsured (2005) 94 Ky. L.J. 101, 104 (Labeling hospital charges as “'regular,' 'full,' or 'list' [is] misleading, because in fact they are actually paid by less than five percent of patients nationally”).

A commentator has noted that a “5 to 1 ratio between amount billed and the amount paid ' is not unusual. The amount paid by third party payers is typically only a small fraction of the amount originally billed by medical care provide[r]s.” Ireland, The Concept of Reasonable Value in Recovery of Medical Expenses in Personal Injury Torts (2008) 14 J. Legal Econ. 87, 88. In the Howell case itself, the plaintiff, seeking recovery of her healthcare providers' “usual and customary” charges wants her medical expense damages to be more than tripled, from under $60,000 ' the amount the providers accepted as full payment ' to almost $190,000. Until the intermediate appellate court's decision in Howell last year, the California Courts of Appeal (starting with Hanif v. Housing Authority (1988) 200 Cal.App.3d 635) had consistently held that claims like the Howell plaintiff's were overreaching. The Hanif court agreed that the plaintiff there could recover as damages those medical expenses paid by a collateral source ' in that case, Medi-Cal ' but held that any award above “the actual amount paid” by the collateral source was “overcompensation.” Id. at pp. 639, 641, 643-644. The court in Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th 298, 306, later applied Hanif where the collateral source paying for the medical care was private health insurance. So did the court in People v. Millard (2009) 175 Cal.App.4th 7, 27, a crime victim restitution case.

A Windfall for Plaintiffs?

The plaintiff's theory in Howell is contrary to a common-sense interpretation of the collateral source rule.

In stating the collateral source rule, the California Supreme Court has focused on ensuring that tort damages include compensation paid to or on behalf of a plaintiff by a collateral source. For example, the court in the leading Helfend case said that “payment” by a collateral source should not be deducted from a plaintiff's damages. However, an amount that a health care provider may have unilaterally stated on its bill as “usual and customary charges” ' over and above what the provider had contracted to accept as full payment from a plaintiff's health insurer ' is not a “payment.” That amount was not paid by anyone.

Now, let us look at it from the plaintiff's side. Underlying the desire to award more than actual payments made by a collateral source is a feeling that, by not doing so, courts would somehow shortchange plaintiffs and allow defendants to get away with not paying for all the detriment they caused. Advocates of this position say the additional damages are necessary to fulfill the collateral source rule's principles “that a person who has invested years of insurance premiums to assure his medical care should receive the benefits of his thrift [and that] [t]he tortfeasor should not garner the benefits of his victim's providence.” Helfend, supra, 2 Cal.3d at pp. 9-10. With this principle in mind, the lower court in Howell concluded that the plaintiff, “as a person who has invested insurance premiums to assure her medical care, should receive the benefits of her thrift; and [the defendant], as the party liable for [the plaintiff's] injuries, should not garner the benefits of [the plaintiff's] providence.” Howell v. Hamilton Meats & Provisions Inc. (2009) 179 Cal.App.4th 686, 700.

However, a plaintiff does receive the benefits of her thrift without collecting the so-called “usual and customary” charges billed by her health care providers. She is receiving the benefits of her investment in health insurance because she is recovering the amounts that her insurer paid on her behalf. If she were not receiving the benefits of her thrift ' or, in other words, if the defendant were garnering the benefits of the plaintiff's providence ' she would recover as damages only the amount that she herself had paid to the health care providers and not any payments made by her insurer.

When a health care provider has agreed with the plaintiff's health insurance carrier to prices lower than the provider's “usual and customary” charges, it does not constitute a benefit to the plaintiff. If there is a benefit to anyone from this transaction, it is to the insurance carrier. By paying less for the medical services provided to its insureds, the carrier's overall costs are lowered. For the insured, on the other hand, all that matters is that her treatment is being paid for by her carrier. The price that the carrier pays, whether high or low, is of little consequence to her.

The lower costs might allow the carrier to reduce its premiums, but that is not a benefit under the collateral source rule. The rule applies only when “an injured party receives some compensation [from a collateral source] for his injuries.” Helfend, supra, 2 Cal.3d at p. 6. An insured “receives” the benefit of a lower premium not as an injured party and not for an injury, but before, and unconnected to, any injury or medical treatment.

Including in recoverable damages the actual payments made by a collateral source gives a plaintiff, not the defendant, “the benefits of her thrift.” On the other hand, allowing additional recovery of “usual and customary” charges that no one pays surely creates a windfall for plaintiffs and their lawyers. In California, at least, damages awarded for additional amounts “billed” by health care providers will not actually go to the healthcare providers. Instead, the money will go only to plaintiffs and their attorneys. This is because providers do not collect any more than the amounts they have agreed to accept from plaintiffs' health insurance as full payment. See Parnell v. Adventist Health System/West (2005) 35 Cal.4th 595, 609.

Thus, under the Howell plaintiff's proposed rule, her health care providers will still get no more than the amount they negotiated with her health insurer, but she will recover as damages the larger amounts “billed” by the providers even though neither she nor anyone else has paid, or ever will pay, the “bill.” And that recovery will be on top of what she already will have recovered under the traditional collateral source rule for the amounts her insurer actually did pay to the providers. This is a windfall under any definition of the word.

Conclusion

Not long ago, a different plaintiff laid claim to compensation for what she asserted were two separate types of collateral source benefits. The California Court of Appeal there, however, rejected the attempt to recover for both. Relying on “equity and common sense,” the court reasoned that, although it was acceptable for the collateral source rule to “result in a double recovery,” there was “no reason to award yet another level of recovery.” Rotolo Chevrolet v. Superior Court (2003) 105 Cal.App.4th 242, 247, 248. Similarly, when a plaintiff is already being awarded damages for collateral source payments made by her health insurance, “equity and common sense” counsel against giving her “yet another level of recovery.”