Legal News


Embarking on an exploration of the “rabbit hole into the upside down world of health care billing,” the Third Appellate District Court of Appeals recently held in Moore v. Mercer (2016) 4 Cal.App.4th 424, that the application of the principles of Howell v. Hamilton Meats (2011) 53 Cal.4th 54, will not be expanded to cap damages at the amount actually paid to a physician by a medical finance company for a plaintiff’s medical care when the plaintiff is uninsured and signed a lien agreement that obligated her to pay the entirety of the cost for her medical care. In affirming the trial court, the appellate court stated:

Based on the record before us and the arguments advanced at trial, we conclude (1) Howell does not cap a plaintiff's damages to the amount a medical finance company pays health care providers for their accounts receivable and medical liens, and the reasoning of Katiuzhinsky [v. Perry (2007) 152 Cal.App.4th 1288] remains sound; (2) Howell does not limit the trial court's discretion pursuant to Evidence Code section 352 to exclude evidence of the amount a medical finance company pays if the court decides, as it did here, that the evidence was minimally probative, if at all, and would necessitate an undue consumption of time to try collateral issues; (3) the terms of the agreement between a medical finance company and the plaintiff's providers may be relevant and discoverable, and therefore the sanctions imposed on the defendant must be reversed; and (4) the trial court properly entered a directed verdict on causation. The sanctions order is reversed, and in all other respects, the judgment is affirmed. Moore v. Mercer, supra, 4 Cal.App.4th at 428.

In Moore, plaintiff sustained injuries in a car accident and required complicated and expensive medical care for her injuries. She was uninsured. The court began its analysis by going through, in some detail, the onerous burden a personal injury plaintiff bears in trying to prove damages for past medical expenses due to the vagaries and variances in billing, negotiated discounts for certain groups of providers but not others, the use of medical liens to cover costs for uninsured patients, etc. The court noted that medical finance companies play a role in the care of the uninsured personal injury plaintiff by purchasing “medical bills, and the liens securing them, from heath care providers.”

A medical finance company “is not an insurance company.” Here, the company, MedFin got involved prior to treatment, when the medical provider asked the company to “evaluate the case to determine whether it is willing to purchase the medical account after the rendition of services.” MedFin then gathered information about the case to decide whether the “plaintiff’s claim against the tortfeasor is worth its investment” and plaintiff will prevail in a lawsuit. If the finance company is willing to buy the account and lien rights, it notifies the plaintiff’s attorney and they enter into a contract which sets out mutual rights and responsibilities. MedFin also enters into an agreement with the physician that sets forth how much MedFin will pay on the dollar for the bill on the account. These amounts are regulated. The attorney for the plaintiff will enter into a consensual lien in favor of the medical provider. Then, “after services are rendered, the medical provider notifies the parties to the lawsuit of its medical lien.” Interestingly, MedFin’s agreement with the provider in Moore did not require that the provider sell its final bill to MedFin; if the medical provider wanted to retain the bill and exercise the lien rights him or herself, that was an option. If the bill did end up being sold, then notice of sale would be given to the plaintiff, the “provider closes its book on the account,” and MedFin owns the account and “assumes the entire expense and risk of collection.” This is important because under the facts of this case the “plaintiff remains liable for the bill and owes MedFin the full amount of what has been charged.” The funds for payment of the lien are expected to come from any award or settlement the plaintiff obtains, and therein lies the risk.

As a result of her injuries, plaintiff Moore underwent extensive and expensive medical treatment, including back surgery. Much was made in the opinion about the level of complexity and cost of the medical care, and the fact that plaintiff was personally responsible for the amount of the lien and that before she was even able to obtain treatment, she had to execute the medical lien which obligated “her to pay the full amount of the fees billed” to the health care providers, who in this case sold their accounts receivable to MedFin for some percentage less than the full amount billed.

During the litigation, there were some efforts to compel production of the agreements between the physicians and MedFin in order to prove how much MedFin paid on the dollar to the physician. The doctor refused, a motion to compel was brought and the trial court denied the motion on the grounds the document was not relevant and would not be admitted. Sanctions were awarded to plaintiff. Other documents were produced, such as the agreement between MedFin and the plaintiff, and the notification from the doctor to the patient that her bill had been sold to MedFin. At trial, plaintiff moved to exclude any evidence relating to MedFin’s involvement, including any lien agreements, purchases of the lien or discounting by MedFin. The court granted the motion on the basis that any related information would be more prejudicial than probative under section 352 of the Evidence Code and would involve too many issues collateral to the central issues of the case.

Plaintiff’s counsel produced two summaries of medical care costs incurred and plaintiff testified to them in some detail. Plaintiff did not offer into evidence the actual bills from providers. There was no objection made to either of the prepared costs summaries, and apparently defendant did not object to their use at trial when plaintiff sought to admit them. Defendant called an expert witness to testify about the “value of the services plaintiff received,” (presumably in an effort to determine the reasonable value of medical services incurred per Howell) and treating physicians all testified to the fact the amount each of them billed reflected “their ordinary and customary charges and the reasonable value of their services.” The expert’s opinion was that the reasonable value of medical services was less than the amount claimed by plaintiff and set out in her summaries. The summaries indicated her total costs incurred for past medical care was over $190,000 and seven different providers testified the total costs of their care was just over $175,000. By contrast, defense expert testified the reasonable value of the services rendered by those seven providers was just over $71,000.

The only issue for the jury to decide was the amount of damages. The court had previously entered a directed verdict for plaintiff on causation because defendant had answered a request for admission in which he “admitted he was a substantial factor in causing the incident.” In addition, plaintiff argued a directed verdict on causation was warranted because “all of the parties’ experts opined that the collision caused the injuries plaintiff sustained.” After entry of the directed verdict, a jury awarded plaintiff over $500,000 in damages, which included $122,680 in past medical expenses (which seems to split the difference between the amount claimed by plaintiff and the amount defense expert said was the “reasonable” cost for those services). On appeal, the defendant only challenged the award for past medical services—essentially the $51,000 difference between what the defense expert argued was the “reasonable value of services” under Howell and what the jury awarded. In affirming the results in the trial court, the Moore court relied, in part, on Katiuzhinsky and Howell, and discussed both decisions extensively. The defendant made the “radical assertion” on appeal that under Howell, the “amount that Moore’s healthcare providers accepted in full payment for their services is the only evidence that is relevant to prove Moore’s economic damages for medical expenses.” The appellate court disagreed and said to accept that position would be to disavow the contrary rationale of Katiuzhinsky, another MedFin case, which it was not going to revisit. The court said the main issue before it was “whether a trial court retains discretion under Evidence Code section 352 to exclude evidence of an injured plaintiff’s medical liens and the sale of the liens to a medical finance company where the evidence is minimally probative and would require the undue consumption of time on a host of collateral matters.”

Under Hanif, Nishihama and Howell, it is settled that recovery of damages by a plaintiff requires meeting a two-step burden: First, “plaintiff must prove that she actually incurred the medical expenses and the amount of her liability for the expenses caps her potential recovery;” and, “[s]econd, plaintiff must prove the reasonable value of the medical services but is entitled to 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.” (Emphasis in original.) In Katiuzhinsky, the court looked at proving the reasonable value of services in cases with a medical finance company. The Moore court stated it was faced with the task of further examining “the relevancy of evidence of reasonable value and the scope of the trial court's discretion to exclude evidence of the sale of a plaintiff's medical liens.”

In Katiuzhinsky, the court held a subsequent assignment of a bill to a third party cannot itself cause a decrease in the value of services that were in fact rendered to the patient, and that plaintiffs should be permitted to produce evidence of “the amounts charged to and incurred by them, and to argue to the jury that these amounts represented the reasonable value of medical services provided.” The defendant and amici in Moore argued that Katiuzhinsky should be overruled and, per Howell and subsequent cases, plaintiff’s recovery should be limited to the “amount MedFin paid the providers.” The court disagreed.

The Moore court distinguished the Howell line of cases in which a plaintiff is insured and physicians have agreed to accept a pre-negotiated or contracted rate for service with the plaintiff’s insurance company, from third-party lien purchaser situation such as that in Moore. Because Howell “specifically excluded the Katiuzhinsky third-party-purchase scenario from its holding” and plaintiff had signed a lien agreement that made her personally liable for the totality of the medical costs, Howell and its progeny do not control. The court rejected defendant’s argument there is no distinction between insurance or managed care companies and third-party medical finance companies that purchase liens.

Which brought the court to the section 352 argument as it pertained to evidence of any agreements and payments between MedFin and plaintiff’s healthcare providers for the liens. It observed that both defendant and plaintiff were correct, to a degree. Defendant was correct that “relevance” is not a valid discovery objection, so plaintiff’s objections to producing the agreements in discovery on the basis of relevance was improper. However, plaintiff was correct that admission of that evidence would have been highly prejudicial and consumed the trial with collateral, time consuming and non-probative matters if admitted at trial. “The probative value of such evidence in determining the reasonable value of the medical services provided an injured plaintiff is minimal.” Since there may, as the Supreme Court in Howell observed, be a vast disparity in what various payees are billed or actually pay for any particular service under any set of circumstances, the trial court appropriately ruled, as gatekeeper, that in the end the evidence would be minimally probative and overly prejudicial.

Thus, it is wrong to suggest, as defendant an amici curiae do, that the so-called market value of a receivable months or years after the services are rendered determines the reasonable value of the medical service at the time the insured patient was treated. In essence, defendant erroneously equates the value of the bill with the value of the services the health care providers delivered. We agree, therefore, with the trial court that introduction of the evidence of what a medical finance company is willing to pay for a lien against a personal injury jury verdict bears little, if any, relevance to the reasonable value of the services themselves.

Plaintiff met her burden of showing she incurred liability for medical charges through the presentation of her list of costs, her testimony and the fact she had signed a lien agreement with her doctor and his assignment of the lien to MedFin, which demonstrate she was liable for the full amount of the bill. The defense expert had the opportunity to see the medical records and to testify that the reasonable value was different from the billed amount. The jury seemed to split the difference in the ultimate award. The court took defendant to task for not challenging plaintiff’s “attorney-prepared list[s]” at trial, but then raising the issue of the sufficiency of the evidence on appeal. “[I]n the absence of an objection or evidence to the contrary,” the evidence sustained plaintiff’s burden of proving damages. The court also held the directed verdict on causation was proper.

Finally, since the trial court incorrectly ruled the lien agreement between the physician and MedFin was irrelevant and not discoverable, but was correct that even if it had been produced it would have been properly ruled inadmissible, the “pretrial error in denying the motion to compel disclosure of the agreement was harmless.” The court reversed the sanctions award against “defendant for bringing what actually turned out to be a meritorious motion.”

After Moore, in cases with uninsured plaintiffs whose treatment has involved the use of third-party medical finance companies, one should endeavor to obtain any and all documentation available that might show what plaintiff has been billed for medical care, what she has actually paid for past medical care and any amount for which she is personally liable. Any relevance objection to production of agreements between past health care providers and a third-party finance company may be countered by citing this case; while such evidence may not be admissible, it certainly is relevant to proving plaintiff’s past medical costs and damages claims. Note that unlike cases involving managed care or other health insurance in which there are pre-negotiated rates of service, the amount proffered by an uninsured plaintiff using a third party medical finance company will likely be the full amount billed by the health care provider. That is when experts may be helpful to help establish and testify to the reasonableness of such costs. Here, for example, it appears the testimony of the expert on the reasonable value of the care likely played a role in bringing down the jury award for past medical expenses.

For more information on this and other recent decisions, please reach out to Reneé A. Richards.