A New Take On The Reasonable Value of Medical Care in Personal Injury Cases

by: David Melton, Lindsay Goulding and Colleen Howard

Up until November 23, 2009, it was common practice for defense attorneys to argue for the reduction of medical expense awards from the amounts billed for medical services to the amounts actually paid to satisfy the debt. That has since changed.

In Howell v. Hamilton Meats & Provisions, the plaintiff was injured in a car accident with a Hamilton Meats & Provisions (Hamilton) employee. In a post-trial hearing, Ms. Howell presented evidence showing that she was billed $189,978.63 for medical expenses. Hamilton presented evidence showing that the hospital and medical center which charged plaintiff those amounts actually accepted $59,691.73 as payment in full, “writing off” the remaining $130,286.90. The trial court, basing its decision on a trilogy of cases (Hanif v. Housing Authority of Yolo County, Nishihama v. City and County of San Francisco and Greer v. Buzgheia ), agreed to reduce plaintiff’s award for past medical expenses to $59,691.73. In reaching that decision, the court stated that permitting plaintiff to receive the full amount billed would constitute overcompensation. The court of appeals, however, disagreed, concluding that the reduction was a collateral benefit for which Ms. Howell should be compensated.

California courts recognize the collateral source rule, which provides that compensation to an injured party from someone other than the tortfeasor should not be deducted from the damages calculation. The motive behind this rule was to prevent tortfeasors from receiving a financial benefit from the injured party’s years of investment in insurance premiums to assure their medical care. In Howell it was successfully argued that, while the amount plaintiff’s insurance company paid to satisfy her medical expenses clearly constituted a collateral benefit, the reduction amount was a secondary collateral benefit. The court explained that, prior to treatment, plaintiff signed agreements with the hospital and medical center stating that either she or her insurance company would accept responsibility for paying all of her bills. Thus, if Ms. Howell’s insurance had not paid the medical providers, she would have been responsible for paying the full amount of the bills. However, because her insurance company negotiated reduced payments, the difference was a secondary collateral benefit plaintiff received as a result of investing in health insurance. The court concluded that Ms. Howell should be permitted to keep this collateral source benefit “because she was responsible for the benefit by maintaining her own insurance.”

To reach this conclusion, the court distinguished the longstanding case Hanif v. Housing Authority, in which the plaintiff’s medical expenses were paid for by Medi-Cal. TheHowell court concluded that Hanif was inapplicable because the plaintiff in that case never agreed to accept responsibility for his medical bills. Therefore, the reduction was not a collateral source benefit and the damage award Mr. Hanif received could be reduced to the amount paid for his medical services. To the extent that its holding is contrary to Nishihama and Greer, which extended Hanif into the realm of private insurance, the Howell court squarely rejected those cases.

The Howell decision has a significant impact on the value of personal injury cases. Defendants will be challenged by the holding in Howell, and may be left with no choice but to accept the full amount billed as the value of medical expenses. In fact, some courts are already applying Howell to prevent discovery into what was paid versus written off on the ground that such information is no longer relevant. However, there are three caveats to the Howell decision.

First, given the split in authority, many expect Hamilton Meats & Provisions to appeal the case to the California Supreme Court sometime before January 2, 2010. Once the petition for review has been filed, Howell will no longer be citable case law. Second,Howell clearly applies only to injured parties with private health insurance. Any individuals receiving Medicare or Medi-Cal benefits will still be entitled to receive only the amounts Medicare or Medi-Cal paid for medical services, not the full amounts billed. Third, even if Howell is upheld, defendants may still argue that the amounts billed do not constitute the “reasonable value of medical care and services.” Doing so, however, will require the additional cost of expert testimony on the issue.

We invite you to contact our office to assess how the Howell decision may affect your case.