Rules on recovery of medical bills in flux.

Perhaps no issue has generated as much confusion recently among trial lawyers and judges than the question of what evidence may be submitted to a jury regarding a plaintiff’s medical bills in a personal injury case and under what circumstances a judge may reduce a jury award to take into account the amount of medical bills actually paid by the plaintiff’s health insurer. Fortunately, it appears that the California Supreme Court is about to enter the discussion and (hopefully) clarify the law.

Generally speaking, the defendant is liable for all of the harm that it has caused, regardless of whether the plaintiff is fortunate enough to have his own insurance that has covered some of the losses. The collateral source rule precludes any evidence of the fact that the plaintiff has other insurance or the payments made through that insurance.

As we all know, health insurers and government providers (such as Medi-Cal) never pay the “full price” for medical care. There are always dramatic reductions that have been negotiated ahead of time. If the actual hospital bill incurred by an injured plaintiff is $1,000,000, the health insurer may end up only paying $100,000. The question then becomes, which of those numbers represents the proper measure of damages for medical expenses. What the debate centers on is whether the $900,000 savings is a benefit that the plaintiff purchased with his health insurance premiums and ought to benefit from in his personal injury case or whether awarding the plaintiff the full $1,000,000 would represent an unwarranted windfall.

In Hanif v. Housing Authority (1988) 200 Cal.App.3d 635, the Court of Appeal for the Third District held that, in the context of medical bills paid by Medi-Cal, the plaintiff is limited to recovering the amount that Medi-Cal actually paid. Thirteen years later, the Court of Appeal for the First District, in Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th 298, extended the Hanif rule to the context of private health insurance.

In Greer v. Buzgheia (2006) 141 Cal.App.4th 1150, the Court of Appeal for the Third District, held that, notwithstanding Hanif and Nishihama, the plaintiff may introduce evidence at trial of the total amount of the bills that he incurred, subject to the defendant’s right to seek a reduction after trial to take into account the amounts that were actually paid. Thus, using the example from above, the plaintiff could put on evidence of the $1,000,000 in bills that he incurred, but the defendant could seek a post-trial hearing in order to reduce the recoverable medical bills to $100,000.

The significance of Greer is that the plaintiff can use the larger medical bill number as an “anchor” for a larger award of general damages. A jury that hears that the plaintiff incurred $1,000,000 in medical bills is more likely to view the injury as serious and award a comparable amount of pain and suffering damages than a jury that is told that the bills are only $100,000. Even if the medical bill award later gets reduced to $100,000, the larger general damage award will remain.

Plaintiffs have suffered under the Hanif and Nishihama rulings, particularly in relatively small injury cases, where the medical bills often make up a very substantial part of the recoverable damages. Perhaps in response to those concerns, three different Courts of Appeal have issued opinions within the past year holding that, contrary to the Nishihama holding, Hanif is not applicable to cases in which the plaintiff had private health insurance. See King v. Willmett (2010) 187 Cal.App.4th 313 (3rd District); Yanez v. SOMA Environmental Engineering, Inc. (2010) 185 Cal.App.4th 1313 (1st District); Howell v. Hamilton Meats & Provisions, Inc. (2009) 179 Cal.App.4th 686 (4th District). Although each court has used somewhat different reasoning to get to the same result, the gist of each holding is the principle that the collateral source rule precludes a defendant from benefitting from the insurance premiums that the plaintiff (or his employer) paid for his health insurance. The Yanez holding has a particularly compelling discussion of that principle.

The California Supreme Court has now accepted each of these three cases for review (and they are therefore not citable). While that could signal that some members of the Court disagree with the Court of Appeal holdings, it could simply represent the Court’s desire to clarify the law. What is clear is where new Chief Justice Tani Cantil-Sakauye stands. She authored the King opinion while on the Court of Appeal.

One interesting wrinkle will be how the Supreme Court addresses the distinction between private health insurance and government programs. A plaintiff whose medical bills have been paid by Medi-Cal has not paid premiums in order to obtain those benefits, and therefore the underlying basis for the collateral source rule may not apply. On the other hand, the Court may be reluctant to establish a rule whereby low-income plaintiffs are subject to a less favorable measure of damages than higher-income plaintiffs.

In the meantime, while we await the Supreme Court opinions, there are a few practice pointers to keep in mind:

1. Greer remains good law, and therefore it is imperative that the plaintiff’s lawyer insist upon his right to present evidence at trial of the total amount of medical bills incurred.

 2. It is also important to make the argument that the collateral source rule precludes any post-trial reduction of medical bills based on the amounts paid by health insurers. While your trial judge may choose to apply Hanif and/or Nishihama, you will have preserved the argument for appeal. By the time any appeal gets decided, the Supreme Court will have presumably spoken on the issue.

3. The Courts of Appeal have not provided much direction as to the nature of the post-trial hearing contemplated by Greer and what sort of evidence must be presented. What is fairly clear is that the defendant bears the burden of proving the amount of the bills that were actually paid. It is important to keep this in mind. Some defense attorneys may neglect to gather in discovery the evidence that they will need (such as health insurer records) to meet this burden. It is also incumbent upon the defense attorney to request a special verdict form that includes a specific line for the amount of past medical bills awarded by the jury. As pointed out in Greer, failure to do so would preclude any post-trial reduction of the verdict.

4. What is clear in all of the opinions is that the applicable measure of damages is the reasonable value of the medical services that have been provided to the plaintiff. Regardless of how the Supreme Court rules, this principle will remain. Thus, even in a brave new world in which plaintiffs may recover the total value of the medical bills that they have incurred, it will be incumbent upon plaintiffs’ lawyers to obtain evidence (typically the testimony of a physician) that this number in fact represents the reasonable value of the services. Expect defense counsel to argue that, since no one ever actually pays the “full price” for health care, the total amount of the bills is not in fact the reasonable value of the services. The question becomes whether the deep discounts that providers give to health insurers are an indication that the standard rates are unreasonably high or whether they reflect the benefits (such as administrative efficiency, prompt payment and repeat business) that providers obtain when dealing with health insurers. In large cases, it may become necessary to present the testimony of an expert on healthcare administration to address this issue.

5. Regardless of how the Supreme Court rules, there are statutes which modify the collateral source rule with respect to medical bills in specific contexts. See Civil Code § 3333.1 (medical malpractice cases); Gov. Code § 985 (governmental defendants). These rules will not likely change any time soon.

Stay tuned.