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MEDICAL BILLS VS. WHAT IS PAID:
WHAT IS HAPPENING WITH THE CALIFORNIA HOWELL V. HAMILTON MEATS DECISION AND HOW DO
YOU KEEP DOWN DAMAGES?
By: Bob Tyson and Mark Petersen
Just when we thought we were out, “they pull [us] back in!” Just as Michael Corleone thought he finally
settled his past in organized crime in Godfather 3, so too did the California defense bar and insurers
think the law concerning recoverable past medical specials was finally settled. The California Supreme
Court decision in Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541 declared the final
rule—so we thought--on the long-disputed issue of whether plaintiffs in California could recover the
total amount of their medical bills, or the much lesser amount that is actually paid by their medical
insurers to satisfy the bills. After inconsistent lower court opinions on the matter, a near-unanimous
Supreme Court in Howell declared plaintiffs are only entitled to recover what was actually paid for their
treatment, not the full, inflated medical bills.
The plaintiffs’ bar has not taken the Howell decision lying down. Their active response is not surprising,
given the huge loss of attorney’s fees in contingency cases expected as a consequence of the decision.
Their loss has estimated to be over $3 Billion dollars a year. Not only have legislative efforts been
pursued, but subsequent appellate court cases have nibbled at Howell’s edges. This article will briefly
discuss the efforts taken to undermine Howell and some actions that may be helpful in countering the
continued attempt by plaintiffs in California to obtain recovery of inflated medical bills that no one ever
incurs, or pays.
Summary of the Howell Decision
When an injured plaintiff receives medical care for injuries and the medical providers accept prenegotiated amounts from the plaintiff’s medical insurer for treatment received, the plaintiff may recover
medical specials in an amount up to, and no more, than pre-negotiated, actually paid amount. No
longer can plaintiffs recover the full, inflated medical bills.
Under the collateral source rule, amounts paid by insurers are typically excluded from trial to prevent
the jury from discovering the plaintiff is insured. That rule still exists. To avoid this problem, the Howell
Court suggested that in the event juries award an amount greater than the amount accepted as full
payment by the medical provider, the defendant may move for a new trial on grounds of “excess
damages.” Cal. Code of Civ. Proc. (“C.C.P.”)§ 657(5). If the trial court grants the new trial motion, it may
also permit the plaintiff to choose between accepting reduced damages and undertaking a new trial.
C.C.P. § 662.5(b). The Court punted on the plaintiff’s other claims of procedural and evidentiary error.
However, the decision effectively removes any claims by plaintiffs that medical insurance records and
information is not relevant and non-discoverable.
Legislation Proposed to Undermine Howell
The Consumer Attorneys of California (“CAOC”) have sponsored a bill to undermine Howell. According
to their website, the CAOC lists the bill as a “priority” to “correct the devastating Howell” decision and is
a “top priority for [their] organization.” That should be enough to raise a few eyebrows.
Senate Majority Leader Darrell Steinberg introduced California Senate Bill 1528 on February 24, 2012,
which seeks to create a wholly new statute, California Civil Code §3284. The original proposed version
of the bill contained an opening clause with explicit language that would gut the Howell decision. It read
in part: “…an injured person shall be entitled to recover the reasonable value of medical services
provided without regard to the amount actually paid.” (Italics added.) Fortunately, the bill was later
amended to remove the “reasonable value” language. The later version, amended on May 15, 2012 and
which passed a State Senate vote on May 30, 2012, now reads as follows: “It is the intent of the
Legislature to establish a framework for compensating persons with injuries due to the fault of third
parties.”
Although the latest version of the bill purports to merely declare the “intent” of the Legislature, the end
goal is clear. The intent and continued efforts of the bill’s sponsor is to create a “framework” of medical
special damages that will undo everything the Howell decision accomplished. The bill is currently under
review by the Judiciary Committee in the State Assembly.
If the bill reaches its final goal, it would increase the recoverable medical specials than currently
permitted under Howell and likely make the amount actually paid to satisfy medical bills inadmissible. If
only an amorphous “reasonable amount” of medical bills is recoverable, plaintiffs could argue the actual
paid amount is irrelevant and perhaps even prejudicial for a jury to see, as it would not reflect the “true”
costs of the medical services. In response, the defense could argue the actual amount paid is a critical
element in determining the so-called “reasonable value” of the medical services. Neither side would
have a slam-dunk argument in this situation.
The proposed new statute contains a second clause that claims to preserve the existing “lien rights” of
medical providers on a plaintiff’s recovery (Civil Code §§ 3040 and 3045.1), as well as the limitation on
damages in medical malpractice cases (Civil Code §3333.1) and against public entity defendants (Gov.
Code § 985). These accommodations appear to have been added to clarify the proposed legislation is
targeted to address only those cases in which plaintiffs are to be compensated by run-of-the mill
tortfeasors, rather than medical professionals or governmental entities.
Post-Howell California Court Decisions
A pair of recent cases further attempted to define the reach of Howell. First the good news:
In Sanchez v. Brooke (2012) 204 Cal.App.4th 126, the Second Appellate District extended the Howell
limitation on recoverable medical expenses to workers’ compensation cases. Specifically, the rule in
Sanchez is “where an employer is required under the workers’ compensation laws to pay in full an
injured employee’s medical expenses, the injured employee may not recover, as economic damages
from a third-party tortfeasor, medical fees that the provider is precluded, either by agreement or by law
(including the statutory fee schedule), from collecting from the employer.” Thus, if an injured
plaintiff/employee’s medical expenses are” X,” but they are satisfied in full by the reduced amount “Y”
pursuant to the workers’ compensation laws, the plaintiff/employee may not recover past medical
specials greater than “Y” from the third-party tortfeasor. This “good” Sanchez case should be used by
civil defendants to demonstrate Howell may also be applied outside the context of private health
insurance and reflects the intended broad scope of its principles.
Now the somewhat bad news:
Another case that coincidentally bears the Sanchez name scaled back the reach of Howell under other
circumstances. In Sanchez v. Strickland (2011) 200 Cal.App.4th 758 (“Sanchez II”), the Fifth Appellate
District ruled that “gratuitous write-offs” from medical bills not connected with “commercially
negotiated price agreements” (like those related to private healthcare insurance) constitutes a benefit
that may be recovered by plaintiffs under the collateral source rule. The principle of limiting the past
medical expenses to the amount paid to satisfy the bills was thus distinguished and parsed in Sanchez II.
In response, the defense bar should distinguish the facts of this case to keep its holding narrowly
circumscribed.
In Sanchez II, 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% of the bill. The balance of the bill was billed to Medi-Cal, but was eventually “written
off” by the provider because it did not have a contract with Medi-Cal (as it apparently did with
Medicare). The Sanchez II court held the “written off” portion that was not covered by Medi-Cal could
be recovered by the plaintiff “under the collateral source rule.” Id. at 769.
One method to attack Sanchez II is to point out the decision actually confirms Howell in that the plaintiff
could not recover more than what was paid by Medicare to satisfy certain medical bills. Id. at 767.
Although this portion of the decision was unpublished, it is clearly referenced and re-affirmed in the
published portion of the case discussed above. Second, the “gratuitously written off” portion in Sanchez
II bears no relation to the figure analyzed in Howell, which was the difference between the total medical
bills and the lesser amount paid by the health insurer to satisfy the bills.
Overall, Sanchez II does not repudiate Howell nor undermine its holding. However, it did put the
defense bar on notice that should it hope to extend Howell to situations in which medical bills are
reduced gratuitously rather than by a contractual obligation, the hope was short-lived. Of course, it is
possible another appellate court could disagree with this decision. However, it generally appears to be
consistent with prior published opinions concerning purely gratuitously-offered benefits to a plaintiff.
Medical Lien Ploy vs. Medical Insurance
A method plaintiffs have recently employed in an attempt to avoid the effect of Howell is to forego their
health insurance benefits and instruct their treating medical providers to perform under a lien. The
entire bill can then be claimed as due and owing and the plaintiff can seek recovery of the entire
“incurred” amount. This seemingly illogical practice illustrates the desperation plaintiff’s lawyers must
be feeling as they consider the massive fees they face losing under Howell.
Fortunately, it would seem few healthcare professionals would be unwilling to forego the sure payment
from a medical insurer in exchange for a lien that is contingent upon a successful and large enough tort
recovery to satisfy the lien. Though we are all familiar with plaintiff-oriented doctors who routinely
operate on a lien basis for litigation purposes, the majority of healthcare professionals do not do so.
In response to this tactic, it would be reasonable to advise the plaintiff of his duty to mitigate his
damages. Under CACI (jury instruction) 3930, a “plaintiff is not entitled to recover damages for harm
that [the defendant] proves [plaintiff] could have avoided with reasonable efforts or expenditures.”
Though no one currently has an obligation or duty to purchase health insurance, if a plaintiff already has
insurance in place when treated for their injuries, one may make the case their intentional effort to
inflate damages (medical specials) by waiving their insurance benefits is in violation of the mitigation
rule. As stated in Pool v. City of Oakland (1986) 42 Cal.3d 1051, 1066: “The rule of [mitigation of
damages] comes into play after a legal wrong has occurred, but while some damages may still be
averted….”
Of course, the collateral source presents an evidentiary obstacle in proving this point, as it typically
prohibits evidence at trial that a plaintiff has insurance. To avoid this bar, the defense could file a pre-
trial (in limine) motion to exclude evidence at trial the total amount of medical bills due to the
unreasonable actions of plaintiff. If that does not succeed, the threat of a motion for new trial on the
grounds of excessive damages may be employed. This would be similar to the Supreme Court’s
suggestion in Howell that the defense do in response to a jury award for past medical expenses in an
amount greater than the amount accepted as payment in full. This option may be enough to persuade a
plaintiff to forego the risky practice of obtaining medical treatment on a lien basis when health
insurance is already in place.
Continued Monitoring Necessary
What is clear from the foregoing is the plaintiffs’ bar will not quietly go away with the prospect of losing
billions of dollars in attorneys’ fees per the Howell decision. Just as Michael Corleone kept getting
dragged back into his past, insurers and the defense bar in California can be confident they will be
repeatedly dragged back into the fight over proper damages awards. Therefore, consistent vigilance on
this issue will be necessary by insurers and attorneys alike.
Contributed by:
Bob Tyson, Esq. and Mark T. Petersen, Esq.
Mr. Tyson and Mr. Petersen successfully argued the Howell case before the California Supreme Court.
TYSON & MENDES, LLP
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