Anyone who compared medical bills to the amount actually paid by an insurer has noticed that there is generally a huge discrepancy between the sticker price and the amount accepted by the medical provider.

Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541 settled that an injured plaintiff whose medical expenses are paid through private insurance (or Medicare/Medi-Cal) may recover economic damages of no more than the amounts paid by the plaintiff or plaintiff ’s insurer for the medical services actually received or still owing at the time of trial. Explaining that while the collateral source rule precludes certain deductions against otherwise  recoverable damages, the Supreme Court wrote that the rule “does not expand the scope of economic damages to include expenses the plaintiff never incurred.” In other words, plaintiffs may no longer recover the inflated “sticker price” of  medical bills. When a medical care provider is contracted to receive pre-negotiated rates from the injured’s insurer, the plaintiff may recover medical damages in an amount up to, but no more than, the pre-negotiated amount actually due.

Regarding the admissibility of the “sticker price,” the Supreme Court held that “[w] here the provider has, by prior agreement, accepted less than a billed amount as full payment, evidence of the full billed amount is not itself relevant on the issue of past medical expenses.” Where a trial jury has heard evidence of the amount accepted as full payment by the medical provider but has awarded a greater sum as damages for past medical expenses, the defendant may move for a new trial on grounds of excessive damages. A non-statutory “Hanif motion” is unnecessary. If it grants the new trial motion, the trial court may permit the plaintiff to choose between accepting reduced damages or undertaking a new trial.

Post-Howell Court of Appeal Decisions

A pair of recent cases has further attempted to define the reach of Howell. Sanchez v. Brooke (2012) 204 Cal.App.4th 126 demonstrates that Howell may also be applied outside the context of private health insurance. The Second Appellate District extended the Howell limitation on recoverable medical expenses to workers’ compensation cases. If an injured plaintiff/ employee’s medical expenses are satisfied in full by the reduced amount pursuant to the workers’ compensation laws, the plaintiff/ employee may not recover past medical special damages greater than that amount from the third-party defendant.

Sanchez v. Strickland (2011) 200 Cal. App.4th 758 added some confusion when it held that Howell’s limitation does not apply to “gratuitous write-offs.” The Fifth District held that, where a medical provider has issued a bill for medical services to the plaintiff and has subsequently and gratuitously written off a portion of the bill, the amount written off constitutes a benefit that may be recovered by the plaintiff under the collateral source rule. In that case, the plaintiff incurred charges for medical care for which the provider billed Medicare. The provider received a partial payment from Medicare and a “contract allowance” which, combined, equaled more than 90 percent of the bill. The balance was billed to Medi-Cal, but was eventually written off because the provider did not have a contract with Medi-Cal. The court held the portion “gratuitously” written off could nevertheless be recovered by the plaintiff as damages.

The decision is problematic because the  court did not explain how the write off was “gratuitous” rather then discounted, in particular since there was no contract guaranteeing payment and no evidence of reasonable value of the medical services provided. Arguably every write-off could reflect a “gratuitous write off,” and the exception could swallow the Howell limitations. As a result of Sanchez, an attorney in a personal injury case must carefully analyze whether the amounts are reduced or written off. Expert testimony may be necessary to decipher billing codes, contract allowances, and write offs. allowances, and write offs.

Howell’s Limitations Applicable to Noneconomic Damages or Future Expenses?

Several issues remain hotly contested as Howell expressed no opinion as to the relevance or admissibility of the billed amount versus the paid amount on other issues, such as noneconomic damages or future medical expenses.  These issues are going to be addressed in Corenbaum v. Lampkin, B236227. The Court of Appeal has requested additional briefing on two issues: To what extent, if at all, is evidence of the amount billed for medical expenses admissible and relevant to the issues of (1) future medical expenses and/or (2) noneconomic damages, and to the extent that evidence is admissible for those purposes, what type of limiting instruction, if any, should be given to the jury. A decision is expected in early summer.

Medical Liens – A Trap for the Unwary

Attorneys must pay attention to medical liens to avoid subjecting themselves to an obligation to reimburse the lien and/or penalties.

An attorney representing a Medi-Cal beneficiary has a statutory duty to notify the Director of Health Services (“DHCS”) within 30 days of filing of a claim. No settlement or award in any action may be satisfied without giving the director notice thereof and a reasonable opportunity to perfect and satisfy the lien. Welfare and Institutions Code section 14124.79 requires insurance carriers liable for a Medi-Cal beneficiary’s claim to notify  DHCS because they are legally obligated to reimburse Medi-Cal.

Medicare liens are enforceable under federal statutes. (See 42 U.S.C.A §§ 2651- 2653.) The Federal Center for Medicare & Medicaid Services (“CMS”) is entitled to  reimbursement for the medical expenses of Medicare beneficiaries injured in accidents which third parties or private insurers are legally obligated to pay. Applicable regulations give CMS the right to seek reimbursement from a Medicare beneficiary or the beneficiary’s attorney to the extent he or she received settlement payments from defendants or their insurers. (See 42 CFR §411.24(h)-(i).)

Medicare’s reimbursement right extends to defendants and their attorneys. Defendants and their liability insurers are under a statutory duty to notify CMS of the litigation. (See 42 USC § 1395y(b) (7)(B).) A release given by the plaintiff to the defendant does not bar the United States from recovering for medical services to the plaintiff. (See United States v. Winter (E.D.Pa.1967) 275 F.Supp. 895.) If a defendant or the defendant’s liability insurer pays a Medicare beneficiary’s tort claim without satisfying a Medicare lien, the defendant may end up paying twice. (42 CFR §411.24(i).) All parties in the case plaintiff, defendant, defendant’s insurer and attorneys on both sides can be held liable for $1,000 per-day penalties for failure to comply with Medicare notification requirements, and for double damages if the government sues to enforce its reimbursement rights. (42 USC §1395y(b)(7)(B); 42 CFR §411.24 (c),(g).)

To avoid potential personal liability, attorneys representing a Medicare beneficiary in a personal injury action should contact CMS and propose conditional payment calculations before disbursing any settlement or award to plaintiff or other lien holders. It is proper to complete settlement agreements with a “set-aside” provision providing that the plaintiff will set aside in a blocked account certain sums of monies to cover the amount of benefits provided. (See Schexnayder v. Scottsdale Ins. Co.(W.D.La. 2011) 2011 WL 3273547, at *8.)

Under California’s Hospital Lien Act, Civil Code section 3045.1, et seq., a hospital that provides medical services to a person injured by an accident or wrongful act may place a lien on the damages recovered from the defendant. The rules are very specific as to how this lien is to be perfected by the hospital. Such a lien is limited to 50 percent of the potential recovery that the injured person may recover from the defendant. Once properly provided with notice, if the defendant then makes payment to the injured person without satisfying the lien, the defendant is liable to the hospital for the expenses of medical care and services rendered to the injured person.

Gabriele M. Lashly is a certified appellate specialist. She handles law and motions, writs and appeals at Slaughter & Reagan, LLP in Ventura.

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