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The primary objective of an award of damages in a personal injury case is to compensate an injured party for that party’s loss. A fundamental concept in tort law is that a plaintiff is entitled to be placed in the same position, at least from a monetary standpoint, that he or she would have been if the injury in question had not occurred.
In theory, calculating damages related to a plaintiff’s past medical treatment should be a relatively straightforward task. Let’s examine a hypothetical scenario where a plaintiff (we’ll call him “Bob”) was involved in a car accident and had to get back surgery which cost $100,000. In this scenario, Bob is entitled to recover $100,000 in damages, right? It turns out that the answer is not quite so simple and requires looking into the complex relationship between healthcare providers, insurance companies and medical finance companies.
Scenario 1: Bob has no health insurance.
The first factor to consider is whether Bob had health insurance that covered the cost of his back surgery. If Bob didn’t have insurance and ended up paying a medical provider $100,000 in cash for his surgery, then he would be able to recover the full $100,000 assuming that this amount represented the “reasonable value” of the medical services he received. What constitutes “reasonable value” is arguable and is generally proven by expert witnesses who are familiar with how much certain procedures typically cost.
Scenario 2: Bob has health insurance.
Things get a little more complicated once we begin to take insurance into account.
Generally, California’s “collateral source rule” provides that an injured party cannot recover less in damages merely because that injured party was already compensated by his or her insurance company. An underlying reason behind the rule is that a “[d]efendant 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.” (Helfend v. Southern Cal. Rapid Transit Dist. (1970) 2 Cal. 3d 1, 10.)
However, in Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541, the California Supreme Court found that the collateral source rule did not apply in situations where medical providers contracted with insurance companies to accept as full payment, an amount less than what they might normally charge. For example, a physical therapist might normally charge $200 for a therapy session but will contract with an insurance company to provide that same session to one of their insured patients for only $80. Medical providers may agree to accept this reduced price in order to gain other commercial benefits such as the guarantee of prompt payment or the potential increase in the volume of business in the form of patients from the insurance carrier.
In this type of situation, a medical provider’s bills will typically state both the full “undiscounted” price of a particular procedure as well as the lesser amount that has been accepted by the provider as payment in full. The Court in Howell reasoned that because the full undiscounted price was never actually incurred, a plaintiff’s recovery was limited to only the lesser amount that was actually accepted by the medical provider. (Id. at 548.) This would be true even if the full undiscounted sum represented the reasonable value of the medical service provided. The Court in Howell stated 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. [Citations.]” (Id. at 555, emphasis in original.) In essence, in order to be recoverable, a medical expense has to be both incurred and reasonable. (Id. at 555.)
With respect to our hypothetical scenario, if Bob did have health insurance and if his medical provider had agreed to accept only $75,000 as full payment for a procedure that would typically cost $100,000, then at most, Bob could only recover $75,000 pursuant to Howell. This would be true even if the $100,000 price represented the reasonable value of the medical service provided.
Scenario 3: Bob and the medical finance company.
Things become even more complicated when we deal with entities known as “medical finance companies.” These companies have emerged to fill a very niche role in personal injury cases involving uninsured plaintiffs. Let’s revisit our scenario with Bob to get a better understanding at how these companies operate.
Let’s assume that Bob does not have any health insurance and that he doesn’t have the $100,000 in cash to pay his medical provider for back surgery. Even if Bob doesn’t have this money, he may still be able to get this procedure done on a lien basis. A medical provider, knowing that Bob has a pending personal injury lawsuit, may agree to provide medical services in exchange for a $100,000 lien against any recovery Bob might obtain in his lawsuit. If Bob wins his case, the medical provider gets paid directly out of the recovery. If Bob loses, the medical provider doesn’t get paid at all. This arrangement, while pretty good for Bob, represents a significant financial risk to the medical provider. This is where medical finance companies come in.
Medical finance companies typically get involved in situations where a plaintiff sustains an injury and needs medical treatment, but has no health insurance. In our scenario, a medical finance company would work with both Bob’s attorney and Bob’s medical provider. Prior to treatment, Bob’s medical provider would ask the medical finance company to evaluate Bob’s case to determine whether it would be willing to purchase the medical provider’s lien in Bob’s lawsuit. Next, the medical finance company would contact Bob’s attorney to gather information about the case to determine whether Bob’s claim against the tortfeasor would be worth the investment. If Bob’s claim meets with the medical finance company’s approval, it would notify Bob’s medical provider to let them know that it would be willing to purchase the lien rights. After the surgery, Bob’s medical provider could turn around and sell his lien to the medical finance company for a reduced price in exchange for immediate payment.
In our scenario, Bob’s medical provider might agree to sell the $100,000 lien to the medical finance company in exchange for an immediate $50,000 payment. If Bob wins the case, the medical finance company stands to collect the full $100,000 from the lien which will essentially net the company $50,000 in profit after taking into account the initial cost of purchasing the lien. If Bob loses his case, the medical finance company will lose the $50,000 that it paid Bob’s medical provider for the lien.
After all of this, what is Bob entitled to recover in his lawsuit? Is he entitled to recover $100,000 in damages based on the full “undiscounted” price of the surgery similar to that of an uninsured person paying out of pocket? Or, pursuant to Howell, is Bob only entitled to recover the $50,000 that the medical finance company actually paid the medical provider for the lien?
The court recently dealt with this issue In Moore v. Mercer (2016) 4 Cal.App.5th 424. In Moore an uninsured plaintiff was involved in a motor vehicle accident and subsequently underwent back surgery. Plaintiff’s medical provider agreed to do the surgery in exchange for a lien on plaintiff’s recovery in the lawsuit. After the surgery, plaintiff’s medical provider sold its lien to a medical finance company.
The defendant in Moore argued that there was no distinction between a typical insurer and a medical finance company and as such, pursuant to Howell, plaintiff’s medical damages were capped to the amount the medical finance company paid plaintiff’s health care provider for the lien. The Court of Appeal flatly disagreed and was unwilling to extend Howell to include medical finance companies. The Court stated that “evidence of what a third party was willing to pay for an account receivable or lien depends on a wide variety of factors bearing no relevant to the reasonable value of the services when rendered such as the probability of achieving a sizable jury verdict, the skill of the lawyers, and the strength of the evidence.” (Moore, supra, 4 Cal.App.5th at 442.) The Court went on to state that “evidence of the amount the provider was willing to accept is equally divorced from the reasonable value of the services delivered and may be related to financial pressures on the provider or managing the cash flow of the operation.” (Id. at 442-443.)
With respect to our hypothetical scenario, it’s clear that Bob’s recovery is not automatically capped at the $50,000 that the medical finance company paid for the lien and Bob may be entitled to recover up to full $100,000 from the back surgery if it represents the reasonable value of this medical service.
Introducing Evidence of the Sale of a Lien
It is important to note that while the Court of Appeal in Moore was clearly worried about the possibility of litigating collateral issues associated with the sale of liens, the Court did concede that this evidence was discoverable because it had some probative value in determining the reasonable value of the medical services provided. (See Moore, supra, 4 Cal.App.5th at 447-448.) As such a defense attorney should not necessarily be dissuaded from seeking such evidence but should look to the Court’s decision for guidance as to what facts might possibly overcome an Evidence Code § 352 objection.
One fact that is easy to establish and appears to relate strongly to probative value is the date on which the medical finance company actually purchased the lien. In Moore, the Court was unconvinced by arguments that the market value of a lien months or years after a service was rendered determined the reasonable value of the medical service as the time the injured patient was treated. (Moore, supra, 4 Cal.App.5th at 444.) Accordingly, evidence that a lien was purchased immediately after medical services were rendered is more likely to overcome a section 352 objection as one that was bought years later.