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Black Boarding Medical Specials In California-The Battle Wages On

This article discusses recent developments in an age old battle of precisely what can be put “on the board” at trial with respect to medical specials. Over the last 20 years, the answer has varied wildly.

In any bodily injury case, the injured party seeks medical treatment, incurring expenses. No great surprise. And when the claim is ultimately litigated, plaintiffs being plaintiffs, they seek to maximize their recovery by arguing for the full amount of the billings as damages. Which would make logical sense if, as is often the case, the injured party’s insurance carrier had not taken advantage of pre-negotiated rates and often paid a substantially lower amount in full satisfaction of the obligation. And so the battle begins.

No one disputes that the very essence of tort law and compensatory damages is to restore a plaintiff to his or her rightful position prior to the wrong. Defendants historically argue that to allow full medical specials to be blackboarded when a far lesser amount was accepted in full satisfaction constitutes overcompensation, in essence, a windfall. Plaintiffs urge the court not to look behind the proverbial curtain and penalize a plaintiff for being wise enough to secure insurance, relying on the collateral source rule.

The first case to meaningfully wrestle with these competing views was Hanif v. Housing Authority (1988) 200 Cal.App.3d 635. In Hanif, the court focused on what properly constituted a “reasonable value” of the measure of recovery for medical specials. The Hanif court held that an injured plaintiff may not recover from the tortfeasor more than the actual amount he or she paid or for which he incurred liability for past medical care and services, reversing the trial court which had awarded special damages for past medical expenses based on plaintiff’s evidence of the full amount of medical expenses incurred, which far exceeded the amount that Medi-Cal actually paid to the medical provider. Because there was no evidence that plaintiff would ever become liable for the unpaid difference, the court found that the difference between the amounts billed by the hospital versus the amount paid by Medi-Cal was “written off.”

Recognizing the very essence of tort damages to compensate plaintiff for the injury suffered by restoring him to his position before the wrongdoing, the court emphasized that allowing plaintiff to recover a damages award for past medical expenses exceeding the actual amount paid for the medical care constitutes overcompensation. Instead of ordering a new trial, the appellate court merely reduced the trial court’s award of special damages based on the reasonable value of past medical services provided. The court deemed that this “reasonable value” of past medical services limited a plaintiff’s recovery to no more than the actual amount he or she paid or for which he or she incurred liability for past medical care and service. The victory was quickly limited by plaintiffs who endeavored to distinguish the Hanif fact pattern involving Medi-Cal from cases involving private insurance. Unfortunately, as a result, Hanif was not consistently followed in private insurance cases.

Clarification arrived in 2001 with the decision in Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th 298. Relying on the rationale of Hanif (and rejecting the artificial distinction raised by plaintiff), the court held that awards for medical costs should be limited to the amount “actually paid” by plaintiff’s private medical insurer to satisfy the bills. While Nishihama put to bed the issue of what could ultimately be recovered, it did not address the timing as to when the adjustment between actual and billed medicals would be undertaken. Is the evidence presented to the jury limited to paid medicals? Or, in the alternative, does the jury hear about the full billed medicals and, post verdict, does the court make the required adjustment? The door was left ajar for plaintiffs who wasted no time exploiting the opportunity.

In the years that followed, defendants were left with a two step option. They would first file a motion in limine to limit the evidence to accepted medicals and, if that failed, file a post-verdict reduction motion, commonly and jointly referred to as “Hanif/Nishihama” motions. For obvious reasons, the post-verdict reduction motions were preferred by plaintiffs because the jury was allowed to hear evidence of the full expenses amount, which typically magnifies plaintiff’s award for pain and suffering.

Defense counsel encountered problems with the inconsistency of application of these “Hanif/Nishihama” motions. Some courts would limit compensatory damages to the amount “actually paid” by plaintiff or on plaintiff’s behalf regardless of the source, whereas other courts would limit compensatory damages to the “reasonable value” of services even if plaintiff paid more. Furthermore, the trial court rulings would often turn on various technicalities. For example, in one case, a court denied a post-verdict reduction motion because defendant failed to “preserve” the Hanif issue by first filing a pre-trial motion in limine. 

The timing issue was resolved in 2011. In Howell v. Hamilton Meats (2011) 52 Cal.4th 541, the California Supreme Court focused on Hanif’s“reasonable value” of services received principle to reinstate the trial court’s reduction of its past medical damages award by the amount “written off” by plaintiff’s private insurer and medical providers. The Court established that evidence of any lesser amount paid in lieu of full payment for a plaintiff’s injuries is relevant to prove damages for past medical expenses. The Court deemed its holding to be consistent with the collateral source rule, which precludes deduction of compensation received from independent sources for damages that would have otherwise been collected from the tortfeasor. Due to the commercial benefits and guarantees of prompt payment therefrom, the Court found that the negotiated rate differential, or discounted amount “written off,” per the private agreement between insurer and medical care provider does not fall within the collateral source rule because the “discount” was never actually paid to plaintiff in compensation for her injuries. Because the collateral source rule only applies to deductions against recoverable damages, the rule is not implicated because plaintiff suffered no economic loss by never incurring liability for the discounted differential in the first place. While a solid victory for the defense position, it was not quite complete. Plaintiffs quickly seized on the fact that the decision arguably left open the question of the relevancy of the total amount of medical expenses billed in determining non-economic damages or future medical expenses.

By way of example, suppose that a young plaintiff suffers injury, incurs $200,000 for surgery, and makes a full recovery. As a result of the pre-negotiated rate between plaintiff’s insurer and the hospital, plaintiff’s insurer is only charged $100,000. But, because the young plaintiff may need future surgery and it is unforeseeable whether plaintiff will have private insurance at the time of the future surgery, plaintiff would argue for the introduction of the full $200,000 incurred for the first surgery as evidence of anticipated future medical expenses. While not terribly compelling, it was still a viable argument.

However, that door was recently slammed shut. In April 2013, the Court of Appeal in Corenbaum v. Lampkin (2013) 215 Cal.App.4th 1308 addressed the unanswered issue in Howell by ruling that evidence of medical expenses billed in excess of the amount actually paid by either plaintiff or his or her insurance provider is not relevant, and is therefore inadmissible, to determine damages for past (Howell) and future medical expenses and non-economic damages. Emphasizing the unreliability in treating the actual amount billed as indicative of the reasonable market value of the medical services, the Court extended its holding in Howell to determine that evidence of the “full amount billed for past medical services is not relevant to the amount of future medical expenses.” The Court also clarified that any expert testimony may not rely on the full amount billed for past medical expenses to establish the reasonable market value of future medical services.

The court in Corenbaum further extended the holding in Howell by establishing that evidence of the full amount billed for past medical services is irrelevant in determining non-economic damages, such as pain and suffering. With no bright-line test or standard, counsel often refers to economic damages as a “point of reference” in determining non-economic damages. But, since evidence of the full amount billed is irrelevant in establishing economic damages for past and future medical expenses, it necessarily follows that said evidence is also irrelevant, and therefore inadmissible, in determining non-economic damages.

Recognizing the implication of these decisions, plaintiffs’ counsel have developed a myriad of strategies to evade the holdings of Howell and Corenbaum. Perhaps the most prevalent is to simply have their client treat “outside the system” and not take advantage of their health insurance benefits. Instead, plaintiffs treat with a network of doctors willing to treat on liens (and “charge” majestic amounts for their services). With no “Howell adjustments” to be made, the full billings are received into evidence for all purposes..

In response to this tactic, defense counsel have filed motions in limine relating to plaintiff’s failure to mitigate medical expenses by not availing themselves of the benefits of their health plans (and taking advantage of the negotiated lower amounts for services). The argument is centered on the premise that evidence would be admissible to demonstrate a violation of plaintiff’s duty to mitigate damages based on the conscious decision to not submit his claims to insurance and that admitting the evidence would be consistent with Evidence Code section 352 and fundamental concepts of due process, for the relevancy and probative value in admitting of evidence of plaintiff’s private health care policies, ability to submit said claims, and insurers’ negotiation for a lower rate for the services provided outweighs the relatively minor prejudicial effects of evoking sympathy, hostility, or confusion to the jury. The results have been mixed and are difficult to predict.

Another attack advanced by defendants is simply focused on the reasonable value of the services. Utilizing expert testimony, the “full specials” are scrutinized. Where data is available as to what the insurance would have paid if the plaintiff had treated in the system, that number factors into the expert’s analysis.

For now, the combination of Howell and Corenbaum has essentially put to bed the issue of what evidence is admissible and can be blackboarded at trial where medical insurance has paid. Open issues remain given plaintiffs’ attempts to skirt these principles and maximize their recoveries. With a variety of factors, such as inconsistencies among districts and judges, plaintiffs and defendants will be in a constant struggle to either evade or reinforce the holdings of Howell and Corenbaum. Defendants will do their best to preserve the integrity of holdings in Howell and Corenbaum, arguing that evidence of the full amount of medical expenses incurred is irrelevant and inadmissible to determine past medical damages, future medical damages, or non-economic damages. Plaintiffs will continue to develop tactics to maximize recovery. In short, while certain battles have been won, the war wages on.

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