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Jul 2014: Howell Update: Two Significant Developments
By Robert M. Tessier

Recently there have been two developments in the continuing evolution of the law related to past medical expenses recoverable in trial of personal injury cases post-Howell, and discovery on that issue. One, Dodd v. Cruz (2014) 223 Cal. App. 4th 933 has been ordered depublished. Two, in the Fifth Appellate District, on June 10, 2014, the opinion in Children's Hospital Central California v. Blue Cross of California was issued.

Dodd v. Cruz Depublished

Dodd v. Cruz was depublished in June. This case allowed for the defense to discover the amount paid by third party factoring companies to medical providers for past medical expenses incurred by plaintiff on a lien. A depublished case is not citable to any court. Therefore, it is no longer good law. Any arguments to a trial court by way of discovery motion or motion in limine should not include citation to this case.

Before declaring a clear victory for the factoring companies, and by proxy the plaintiff's position on this issue, consideration should be given to the June 2014 case ofChildren's Hospital Central California v. Blue Cross of California (F065603) June 10, 2014.

Children's Hospital Central California v. Blue Cross of California

The dispute in this case involved the reasonable value of post-stablilzation emergency medical services provided by the Hospital to Medi-Cal beneficiaries enrolled in Blue Cross's Medi-Cal managed care plan during a 10 month period when the Hospital and Blue Cross did not have a written contract that covered those beneficiaries.

The Hospital billed a total of $10.8 million for these services during that time. They claimed these were "full billed charges" and cited to California Code of Regulations, title 28, section 1300.71, subdivision (a)(3)(B) which defines "Reimbursement of a Claim" for non-contracted providers as "the reasonable and customary value for the health care services rendered." Hospital therefore sought the full $10.8 million.

Blue Cross paid $4.2 million based on the Medi-Cal rates paid by the government. It argued that the regulation relied upon by Hospital was not the exclusive standard to determine the amount to be reimbursed, and that it was entitled to discover, among other things, how much the Hospital has accepted as payment in full in other situations involving the same or similar care.

During litigation Blue Cross asked for discovery related to the amount Hospital was actually paid in other cases for services, but the trial court denied Blue Cross this discovery, and severely limited the evidence it could provide to the jury.

Hospital presented evidence of its schedule of the charges it bills for all procedures, services and goods provided to patients. This is the "charge master" which contains more than 16,000 line items. These charges are the same for every patient, but evidence presented was that in 2007 and 2008, less than five percent of the payers paid Hospital the full billed (charge master) charges.

At trial, Hospital presented the charge master rates of $10.8 million, and the jury agreed that Hospital should recover that amount. Blue Cross appealed, claiming that it was entitled to discover and present evidence of what Hospital actually accepts as payment in full irrespective of the charge master rate, and that the statute (section 1300.71) is not the sole determinative factor of reasonable and customary value of medical services.

The court of appeal agreed with Blue Cross, and found that the trial court erred by excluding evidence proffered by Blue Cross of the amounts Hospital accepts as payment in full for the services provided. The holding supports Blue Cross's argument that the amount customarily accepted as payment in full by a provider is relevant evidence of the reasonable value of the medical services.

"...evidence regarding the range of fees that Hospital accepts for post-stabilization care is relevant to the reasonable value of those services. The trial court incorrectly concluded otherwise and denied discovery on that ground. Thus, the trial court erred in denying Blue Cross's motions to compel discovery." (slip opinion, p. 17)

The court also analyzed the issue from a quantum meruit perspective. The measure of recovery in quantum meruit is the reasonable value of the services, and a wide range of evidence is allowed to determine that value. Such admissible evidence includes expert testimony, agreements to pay and accept a particular price, or a written contract providing for an agreed price. (slip opinion, p. 14)

The judgment was reversed and remanded for a new trial on damages, including additional discovery, presumably on the issue of what Hospital has accepted as payment in full for other patients. Hospital's claims of proprietary privilege and trade secret were dismissed by the court, as "Hospital's concerns can be handled through appropriate protective orders." (slip opinion, p. 18)

Analysis

Although Dodd is depublished, there is little doubt that Children's Hospital will be cited by parties seeking discovery from providers regarding the amount they have accepted as payment in full for other patient's medical care in an attempt to gather evidence of "reasonable value" of medical services. But let us put this issue in perspective:

1. The charge master: The Children's Hospital opinion highlights the charge master which in turn highlights the fact that these discovery and trial battles in personal injury cases are part of a much larger systemic problem of medical billing in the United States healthcare system. The price of a medical service is more defined by the patient's insurance coverage and contracted rate than by the intrinsic value of the service itself. This will forever cause problems for personal injury cases, where the jury is charged with awarding the "reasonable value" of those services necessary to care for the injured plaintiff. Now that "reasonable value" has nothing much to do with the amount billed (as held by Howell and Corenbaum) due in large part to the charge master losing touch with reality, we will have litigation on the subject for years to come. When less than 5% of all payers actually pay the amount the charge master says is the reasonable bill for the service, it is clear that there is only a tenuous connection between a charge master billed rate and a reasonable price for a service. A real comprehensive reform of the entire health care system would put this issue to bed, but we will all be retired before that ever occurs given the political discord on the issue.

A party seeking an award of a charge master price for medical services will have to contend with the dim view the Children's Hospital court takes of the charge master.

2. Children's Hospital may be limited to its facts: For personal injury practitioners, the first issue you will have with this decision is that it involves a specific statutes which governs the relationship between medical service providers and health insurance providers under the Medi-Cal program. While this decision has far reaching ramifications in that arena, an argument may be made that it has less relevance or no relevance in personal injury cases, which do not share the same rubric of regulation. Moreover, the quantum meruit analysis, which is allowed by the statutory and regulatory scheme at issue in Children's Hospital, is not necessarily applicable in personal injury claims. Lastly, to the extent the analysis holds that the amount billed is relevant evidence of the reasonable value, it is inconsistent with Howell and Corenbaum. Both Howell and Corenbuam do not permit, without testimony that the bill is reasonable and necessary, evidence of the amount billed.

3. The logistical nightmare: In Children's Hospital, the ability to actually figure out what the hospital received for each individual bill is in the litigant's future. For factoring companies and lien providers in personal injury cases, this task will necessitate a Herculean effort of going back over every patient's file and figuring out what was billed and what was accepted on an individual basis. Will a trial court on a discovery motion be sympathetic to the provider's argument that such an effort would be oppressive and burdensome? Are there HIPPA concerns? If this data is not customarily maintained by the provider is such a fashion, can a discovery order force such a compilation? Any provider facing a supoena post-Children's Hospital will need to be prepared to address the burdens and logistics of complying with such requests. The court in Children's Hospital did not address this issue, and it may be a significant one. One would expect more litigation by way of protective orders given these concerns.

4. Expert testimony: In the post-Howell reality where amounts of medical expenses in the past are a major battlefield when plaintiffs treat on liens, expert witnesses (whom I have nicknamed "billologists") are becoming more and more important and utilized as experts at trial. The most effective billologists use a peer reviewed and scientifically based methodology to determine a reasonable reimbursement rate for services provided. In contrast, if the lien provider can not make a compelling case that the amount it is billing is a reasonable and customary charge for those services, it makes trial very difficult for the plaintiff. The threadbare argument that "the charge master says that's the reasonable amount" may be doomed after Children's Hospital.

For example, take a look at www.healthcarebluebook.com . An arthroscopic surgery in a surgery center and anesthesiology has a quoted "fair price" of $3,891.00 on their website ($2,189 facility fee, $1,110 surgeons fee, and $591 anesthesiologist). This is for zip code 90210, one of the most expensive in the country. But when the service is on a lien, bills as high as $90,000 for the same procedure are submitted as "reasonable" at mediation and trial! If you are a plaintiff's lawyer, and you have referred your client to this provider with the $90,000 bill, and the defense provides expert testimony that the reasonable value is $3,891, or even $10,000, you need to be ready to support that bill with evidence it is reasonable. Perhaps your provider can do it. Perhaps not. It is highly unlikely any billologist will support that kind of number or any number close to it based on the existing data.

But with Children's Hospital, your provider may now face discovery concerning how much it actually accepts as payment in full in other cases for these same services. Jurors will pay attention to this testimony, especially when the defense attorney themes his/her case around the doctor/lawyer/lien relationship. This is a powerful theme post-Howell, as now a major battlefield in the argument over the reasonable value of past medical expenses. Lien providers and factors who can not support their charges not only are forced to take far less than what they ask for, but also they also risk a negative jury reaction to bills characterized as outrageous and gouging by the defense. This can impact the value of the entire case, as many trial lawyers can attest who have been trying these cases post-Howell.

Conclusion

While the depublication of Dodd was seen as a victory for the plaintiff's bar and the factoring companies, Children's Hospital provides law for the defense to continue in its quest for discovery of financial information regarding the amount accepted as payment in full for past medical expenses. Children's Hospital arises out of a dispute between a hospital and large insurer over reimbursement rates for Medi-Cal patients, so no doubt arguments will be made to distinguish it and avoid its applicability to garden variety personal injury cases. In any case, the beat goes on...

I sincerely appreciate the opportunity to share information with you on this interesting and important area of personal injury law. Feel free to share this email with anyone you believe would like to read it. You can get on my mailing list by emailing me at robert@tessiermediation.com


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