THE DAY THE MUSIC DIED

THE DAY THE?MUSIC DIED

By Donald B. Cripe, Sr. ADR Professional, MC3 Certified Mediator

I have a friend who is a long-time trial attorney from Orange County. My friend, a plaintiff’s lawyer, was in the middle of what he considered to be a significant damage case in his local courthouse in the late summer of 2011. He and I often enjoyed sharing the events of the day while we were in trial, so when he telephoned me during the 2nd week of August of that year, I wasn’t surprised. I was, however, surprised by the anger he was firmly expressing to me. It was on that day word of Howell v. Hamilton Meats & Provisions, Inc., (2011) 52 Cal.4th 541; 257 P.3d 1130; 129 Cal.Rptr.3d 325, 76 Cal. Rptr. 3d 325, (“Howell”) hit the streets of California. Every stage of my friends case was pursued on the basis of the standing law regarding the calculation of personal injury damages as it stood when his trial began. Well into his second week of a hotly contested trial, the Howell decision burst his damage bubble. In stead of being able to claim the value of the medical treatment that had been billed by the providers, Howell limited a plaintiff’s claim to the amount paid for treatment. As much as my friend and his colleagues from the plaintiffs’ bar felt devastation, the defense bar, or at least insurance carriers, rejoiced. Little did they realize at the time the difficult mess of damage calculations that was coming.

Though the lien provider practice was common pre-Howell, many from the plaintiffs’ Bar were content dealing with and submitting the billed medical expenses as their clients’ special damages instead of relying upon medical lien arrangements. It was easy and straight forward: order the billing, get it admitted at trial and “blackboard” the numbers for the jury. The defense always had their argument regarding “reasonableness” of the charges, but it was a difficult one given the fairly standard community billing practices of health care providers. The defense bar saw an enormous difference between billing and what was paid for services. For example, an MRI might be billed at $1,500, but because of contracts between health care providers and health insurers which demanded significant discounts from the providers, payment for that MRI might be as low as $300 thereby reducing a plaintiff’s damage claim for that item by $1,200.

Was the Court’s ruling logical and reasonable? Objectively, yes. After all, our civil litigation system is based upon compensating injured persons for their actual losses; Civil Jury Instructions go so far as prohibiting speculation as to what those losses are. Only because health insurers often assert liens on Personal Injury recoveries does the law allow recovery of the funds paid by the carriers to be claimed by plaintiffs.

If Howell is a principled decision serving to compensation for actual losses, what is the problem?

Aside from the obvious impact it has upon damage awards, an unintended consequence has become the normal circumstance in personal injury cases.

Once the reality of Howell and its impact came into full focus, plaintiffs’ damage claims have become much harder to deal with either in settlement discussions or sometimes even in jury deliberations. Instead of relying on the hard-number billing of the professional providing the services (often the plaintiff’s own personal physician), plaintiffs who, for whatever reason, chose not to go to their regular health care providers, turned to lien providers.

The key to this process is that those providers are not paid until the case is resolved through settlement or trial. For the same reasons contingency lawyers’ fee agreements may yield more (and possibly less) in fees for the attorney than he would receive on an hourly basis for the same case, health care providers working on a lien bases are working on a similar arrangement. Consequently, it is common for providers working on a lien basis to charge far more for a given service/procedure than they would on a cash-basis for the same patient. What mediators see on a daily basis may be perceived by some as a form of billing abuse while the health care providers who often negotiate their charges to fit the circumstances of resolution of cases to be a leveling mechanism, i.e. what they lose on this case will be recovered on the next.

This article does not attack or criticism of the practice of lien billing or those who take advantage of it for their cases. Because of the downward pressure Howell places upon damage claims, a situation that was originally intended to help uninsured individuals who could not afford cash-pay treatment, has morphed into a situation in which the value of medical expenses are often an item to be litigated with the assistance of expert opinions. Since lien providers who are willing to negotiate final payment, often peg their negotiations on what the patient recovers from the case, it is very difficult for litigants, counsel, mediators or any settlement officer, or the defense to accurately calculate a settlement number that will leave plaintiffs financially “whole” but does not over-compensate. Defense counsel and insurance carriers strongly resist hypothetical numbers. During settlement negotiations we see the amount of medical expenses carriers are willing to “recognize” to be widely divergent from what has been presented. The defense often relies upon health insurance payment schedules as a basis for their evaluations creating a great deal of difficulty finding an acceptable number.

Lawyers and lien providers may not be all that concerned over this new stress point, but plaintiffs who are facing hefty medical bills, are in constant fear that they will be left with unpaid bills if the case settles for too little. I hear attorneys offer reassurances to plaintiffs in every personal injury mediation, but I have never heard an attorney promise any plaintiff what a lien provider will take in the end. I have heard defense counsel and carriers argue stridently that their analysis of medical bills is accurate but have likewise never heard counsel or a claims representative state with certainty a trier of fact would agree with them. The problem, of course, is there can be no certainty.

I suggest, as reasonable as Howell sounds, it has become the bane of personal injury litigation for both sides of the conflict. Unfortunately, our litigation system cannot seem to grow with practice and technology. In my view, the system relies on the same type of medical billing Mrs. Palsgraf’s attorneys relied upon in her case nearly 100 years ago and those that came centuries before (one wonders if we would still honor bills for bloodletting?).

Donald B. Cripe is an Arbitrator, an MC3 Certified Mediator, and panelist with California Arbitration & Mediation Services (CAMS) among others such as the American Arbitration Association, AHLA, California Association of Realtors, and others. Mr. Cripe is also a cofounder of California Arbitration & Mediation Services.