Bremer Whyte Brown & O'Meara

How far will the California Supreme Court's seminal decision in Howell v. Hamilton Meats (2011) 52 Cal. 4th 541 extend to reduce excessive plaintiff demands and awards?  It might not just be insurance contracts that mandate a reduction, what about a personal injury lien, or uninsured patients that negotiate a discount?  There's more to come from this key decision.

In August of 2011, the California Supreme Court moved closer to clarifying an issue long plaguing the filed of personal injury law in California - to what extent can an injured plaintiff present and recover full medical "bills," even when those "bills" were resolved for less than the full amount?  The California Supreme Court in Howell v. Hamilton Meats & Provisions, Inc. expressly ruled that where a medical provider has accepted, as full payment, pursuant to a preexisting contract, an amount less than as stated in the provider's bills, an injured plaintiff may only recover that reduced amount.  (Howell, supra, 52 Cal. 4th at 548; See Also - Parnell v. Adventist Health System/West (2005) 35 Cal.4th 595, 609 [where hospital had agreed with plaintiff's health plan to accept discounted amounts as payment in full, plaintiff owed hospital nothing beyond those discounted payments]; Hanif v. Housing Authority (1988) 200 Cal. App. 3d 635, 641 [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].)

The Howell case dealt specifically with a common issue - patient/plaintiff Rebecca Howell received medical treatment following an automobile accident.  In short - the "bills" for Ms. Howell's treatment were far greater than what her private insurance (PacifiCare) actually paid pursuant to its agreement with the hospital, coupled with the fact that the hospital "wrote off" additional charges.  In all, the amounts actually "paid" were $130,286.90 less than the amounts "billed" by the hospital.  Accordingly, though plaintiff Howell prevailed in her case at trial, the court reduced her award by the $130,286.90 that was "billed" but never actually "paid."  The Supreme Court upheld the reduction.  (Howell, supra, 52 Cal. 4th at 550.)

The Supreme Court in Howell noted the simple truth in this country - that virtually no one pays the full medical "bills" as listed on the hospitals' final invoice or "charge master" (the hospital's master rate sheet).  Rather, "so many patients, insured, uninsured, and recipients under government health care programs, pay discounted rates" to the point where medical bills have been called insincere.  (Id. at 561; Citing Reinhardt, The Pricing Of U.S. Hospital Services: Chaos Behind A Veil Of Secrecy (2006) 25 Health Affairs 57, 62.)  Much like the neighborhood rug center that always seems to have a "going out of business sale," hospital bills are virtually always slashed down dramatically for final payments.  No one pays "full price."  This is especially true in an insurance context, where "Medical providers that agree to accept discounted payments by managed care organizations or other health insurers as full payment for a patient's care do so not as a gift to the patient or insurer, but for commercial reasons and as a result of negotiations."   (Howell, supra, 52 Cal. 4th at 558.) 

Simply put, this is the law of supply and demand - an insurance company will say to a hospital that it will allow its insureds to treat with the hospital, in exchange, the hospital will give the insurance company discounts on the services (often dramatic discounts).  It is a mutually beneficial financial arrangement; not something a hospital or insurance company does out of altruism (these are for-profit business after all, and even those few remaining non-profit hospitals have to make money to keep the lights on). 

With this key clarification by the Supreme Court in mind, it seems that many other types of medical payment arrangements would likewise fit into this pattern.  Most obvious would be the ever-present "personal injury lien agreement," whereby a medical provider agrees with the patient/plaintiff and/or the personal injury lawyer to perform treatment for no upfront costs, but agrees to a recovery once a case is resolved.  This is not done out of altruism (for then the treatment would be free), rather, this is done as a mutually beneficial business agreement, just like the insurance agreements discussed in Howell.  Perhaps this lien is pre-negotiated, perhaps not.  Perhaps the medical provider will inflate the "bills" for purpose of the litigation, perhaps not.  Perhaps the medical provider has hundreds of personal injury cases with the same lawyer, perhaps not.  Either way, this type of arrangement seems squarely analogous to an insurance agreement like that in Howell given the medical provider is making a financial decision to accept a negotiated payment, less than the full bill, in exchange for the business, in the exact same fashion as the providers do with insurance companies. 

In practicality, a medical provider questioned on this issue will likely contend that the plaintiff/patient is responsible for the whole bill, regardless of the lien.  However, that was Ms. Howell's argument too - that irrespective of the insurance agreement, she was fully responsible for the full payment when she signed patient agreements with the hospital.  The Supreme Court rejected that contention, noting that the insurance agreements essentially overruled her patient agreements via the hospital's acceptance of the insurance money.  (Howell, supra, 52 Cal. 4th at 557.) 

Certainly the facts of each case will dictate if this issue is worth pursuit, and certainly plaintiffs' attorneys and medical providers will be cautious as to the details of the arrangements (especially what they might disclose).  Some information may, or may not, be produced in discovery.  Plaintiffs' attorney's will unlikely voluntarily disclose the information, and the medical providers might keep separate files on these issues to avoid production in standard medical record subpoenas.  Some may even contend the information is "attorney-client privilege."  However, with the right discovery requests, and the right questions asked at depositions, much of the information should be discoverable, and it is certainly relevant. 

This issue will surely be addressed by the appellate courts shortly as this firm's litigation defense attorneys and other capable defense counsel continue to refute inflated damage claims and seek the best possible resolution for their clients.

On October 11, 2011, the California Court of Appeal, Second Appellate District, published the case of Western Heritage Insurance Company v. Superior Court (2011 DJDAR 15131)

In this case, Western Heritage provided a defense to its insured, a commercial provider of home healthcare services, in an action for damages arising out of an automobile accident.  The insured’s employee, in the course and scope of her employment, drove in an allegedly negligent manner, and plaintiff’s decedent and passenger were injured.  Other claims were made as well. Western Heritage provided a defense to its insured and its employee driver, under a reservation of rights.

During the litigation, the defendant driver refused to provide discovery responses and to appear for deposition, despite court orders to do so.  As it turned out, the defense counsel retained by Western Heritage for the driver answered the complaint against the driver, but never was in communication with her.  The plaintiff moved to strike the driver’s answer, which was granted.  A default was then entered against the driver.  Western Heritage moved to intervene, which was granted.  However, the trial court ruled that Western Heritage could only litigate the issue of damages, not liability.  The trial court reasoned that Western Heritage “stepped into the shoes” of its insured, and since the driver was in default, Western Heritage was stuck with a finding of liability.  This appeal ensued.

The Court of Appeal reversed the trial court, thus permitting Western Heritage to litigate all issues, including liability.  The Court rejected the notion that an insurer is bound by the procedural issues that befall their insured when the insurer intervenes.  But the Court of Appeal went further.  The Court of Appeal held that the carrier is permitted to intervene and litigate all issues, whether or not the default against its insured has been vacated.

This ruling is critical.  Carriers oftentimes are presented with claims after their insured has been defaulted, and plaintiff attorneys are quick to resist setting the default aside in order to keep strategic advantage.  No more.  Now carriers are free to simply intervene when confronted with troublesome plaintiff lawyers, and they are permitted to litigate all issues, including liability and damages.