Medical liens and the current status of Howell

A review of Howell and its progeny: their impact on valuing medical damages and negotiating hospital liens

2016 February

Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541

Rebecca Howell was insured with a Preferred Provider Organization (PPO) when she was seriously injured in a traffic collision caused by a Hamilton Meats employee. Ms. Howell incurred $189,978.63 in medical charges for her care, which were included by the jury in its damage verdict. Pursuant to a pre-injury contractual arrangement between Rebecca’s providers and her PPO, $130,286.90 was “written off” for which Rebecca could not be held responsible for by her medical providers. The trial court granted a post-trial motion to reduce the judgment by the amount of the write-offs over the objection of plaintiff’s counsel that such an action violated the collateral-source rule.

The California Supreme Court ruled that the collateral-source rule was inapplicable to the “written-off” amounts, since the plaintiff was never going to be responsible for the written-off charges. The Court held that those damages (the $130,286.90) were never recoverable tort damages in the first instance and, therefore, the collateral-source rule never came into play. The Court repeatedly stated that it was not abrogating the collateral-source rule in its holding and that the fact that insurance would pay a tort victim’s medical damages should continue to be inadmissible under the collateral-source rule.

The Supreme Court in Howell created a two-prong analysis of a tort victim’s ability to recover for past medical expenses. Under the first prong, recoverable past medical expenses will never exceed the “paid or owing” amounts. A tortfeasor will never be responsible for paying past medical charges for which the plaintiff will never have any liability because the provider, as of the time the services were provided, contractually agreed to accept less than its full and customary charges as payment in full.

The second prong of the Howell analysis limits the plaintiff’s recovery for past medical expenses to those that are “reasonable.” A plaintiff’s recovery for past medical expenses will be limited to the amounts actually paid or owed or the reasonable value of the care provided, whichever is less. While it would be unusual for the amount actually paid to be attacked as being unreasonable, theoretically a defendant could argue that the medical expenses actually paid or owing after the write-offs are still unreasonable. The Howell case turned on the first prong of the analysis since Rebecca Howell was insured with a PPO that had a pre-service contractual arrangement with the provider for a reduction of customary charges. The Court did not address or apply the second prong of Howell. It also declined to address the issue of valuing future medical expenses or whether or not billed charges could be relevant to general damages.

The Howell court drew a distinction between pre-injury negotiated rates for medical care and the situation where the rates are negotiated after the medical services are provided, the medical provider writes off or discounts the amount of the bill, or where the plaintiff receives charitable care. (Id. at 559.) Therefore, Howell should have no application where the plaintiff initially incurs the provider’s customary medical charges but later obtains the benefit of a reduction, write-off or waiver. (See Smock v. State of California (2006) 136 Cal.App.4th 883; Arambula v. Wells (1999) 72 Cal.App.4th 1006; Hanif v. Housing Authority (1988) 200 Cal.App.3d 635; Rest. 2d, Torts, Section 920(a), comment, pg. 515.) Under this scenario, plaintiff should be allowed to proceed on the “reasonable value” prong of Howell.

The holding of Howell was soon extended to apply in the third-party action where the plaintiff’s medical bills were paid by Workers’ Compensation. (Sanchez v. Brooke (2012) 204 Cal.App.4th 126.) The Court of Appeal also applied the Howell doctrine to the situation where the plaintiff’s medical bills were paid by Medi-Cal or Medicare. (Luttrell v. Island Pacific Supermarkets, Inc. (2013) 215 Cal.App.4th 19.)

The undisputable holding of Howell at this point focuses upon the plaintiff’s obligation to pay for her medical care at the time it is provided. If there is a pre-service contractual agreement between the medical provider and the payor of the services that the provider will accept a negotiated rate, plus any potential co-pay from the plaintiff as payment in full, then the plaintiff’s tort damages for past medical expenses are limited to the contractually paid rate plus plaintiff’s co-pay obligation, if any.

If the medical provider accepts as payment in full Workers’ Compensation, Medi-Cal or Medicare which statutorily prohibits them from looking to the patient for any financial contribution for the medical care, then the plaintiff’s entitlement to recover as tort damages past medical expenses is limited to what was paid by the Workers’ Compensation carrier, Medi-Cal or Medicare.

Corenbaum v. Lampkin (2013) 215 Cal.App.4th 13011

Corenbaum addressed a couple of issues that were left unanswered by the Howell court. The court in Corenbaum held that since the total amount of the provider’s medical charges not paid or owed is inadmissible as to past medical expenses, then those charges are also inadmissible with respect to plaintiff’s general damages or to establishing the value of future medical care. (However, this position was recently questioned by the 4th District Court in Bermudez v. Ciolek (2015) 237 Cal.App.4th 1311, footnote 6.) The court provided no guidance as to how to establish the reasonable value of future medical care.

State Farm Mutual Ins. Co. v. Huff (2013) 216 Cal.App.4th 1463

This action was an interpleader claim by a hospital whose lien of $34,320.86 had not been honored despite the patient’s tort victory and recovery of a judgment including $232,708.80 in past medical damages. In proving up its lien claim, pursuant to the Hospital Lien Act (Civ. Code, § 3043.1-3045.6), the hospital authenticated the hospital bill with itemized charges, provided testimony that its billing people had established that the patient had no insurance and had not paid his bill and that adequate notice of the lien had been provided to State Farm pursuant to the Hospital Lien Act. The Court of Appeal found that the evidence was insufficient to support a judgment in favor of the hospital, since the hospital had not provided any evidence that its charges were “reasonable and necessary.” The Court applied the Howell holding to a hospital seeking to enforce its lien. It had to establish that its charges were both necessary and reasonable.

Bermudez v. Ciolek (2015) 237 Cal.App.4th 1311

On June 22, 2015, Division 3 of the 4th Appellate District filed this opinion certified for publication. Bermudez was uninsured and incurred over $460,000 in medical bills, all of which were on a lien. Plaintiff called two doctors who testified that most of the charges were “fair and reasonable.” Plaintiff’s neurosurgeon, who had performed his second back surgery on a lien, testified that the bills were “fair and reasonable and within community standards” for the surgery he performed. He also rendered opinions as to the cost of medical care that plaintiff would require in the future. Plaintiff’s medical experts conceded that $46,175.41 of the medical charges were unreasonable or slightly excessive. The defense called their own doctor to render his opinions as to the reasonableness of medical expenses based upon his own practice, his knowledge of rates in his area of practice and the amounts he actually receives from insurance companies and cash patients. He testified that more than $47,000 of the billings were excessive. The jury awarded plaintiff $3,751,969 in damages, which included charges for all the medical care plaintiff had received, including the $46,175.41 in damages which plaintiff’s own experts conceded was excessive and not reasonable.

On appeal, relying upon Howell and Corenbaum, Ciolek argued that a new trial on damages was required because plaintiff failed to meet his burden of proving that his claim for past and future medical damages was “reasonable, as measured by an exchange or market value.” The Court of Appeal held that the “actually paid” prong of Howell was inapplicable since the plaintiff was uninsured and that the determination of recoverable medical damages turned on the “reasonable value” prong of Howell. (Howell, supra, 52 Cal.App.4th at pg. 555-556.) The Court then held that plaintiff met his burden of proof with expert witnesses as to the reasonable value of his past and future medical expenses. The Court noted that determination of the reasonable value of plaintiff’s past medical expenses and future needed care is a jury question, just as it had been before Howell. It is up to the trial judge to determine what evidence the jury considers on the issues. The Court affirmed the judgment as modified, subtracting the $46,175.41 which plaintiff’s experts conceded were unreasonable charges.

Probably the most significant aspect of the Bermudez decision is footnote 6 which states:

Of course, this case does not feature an insured plaintiff. But as a general matter, we express some reservations about Corenbaum, supra, 215 Cal.App.4th 1308, seemingly holding that the amount initially billed is per se inadmissible in cases of insured plaintiffs whose bills were paid in full for less than the initial billed amount. Howell, supra, 52 Cal.4th 541, and Corenbaum did not contemplate a battle over the reasonableness of the amount paid to settle the bill in full. Unless defendants stipulate to the reasonableness of the amount actually paid to settle in full the medical bill, it seems to us that, consistent with pre-Howell case law, evidence of the initial billed amount would be relevant to proving the reasonableness of the discounted amount that was actually paid.

This footnote provides powerful ammunition for future litigation where insurance paid a plaintiff’s past medical expenses at a discounted rate. The footnote stands for the proposition that, if the defendant is not going to stipulate that the amount paid is reasonable and they want to litigate the issue further, then the full charges should be admissible to allow the plaintiff to support its position that the final paid amount is, in fact, reasonable, given the fact that it is a discount from the original bills. Pursuant to Auto Equity Sales v. Superior Court (1962) 57 Cal.2d 450, all trial courts are bound by all Court of Appeal opinions.

The Bermudez opinion is a significant and long-overdue opinion that addresses the measure of damages for both past and future medical care. Ever since Howell and then Corenbaum, the defense has argued that “reasonable value” must include some sort of a “market rate” blend of paid rates, including insurance, private pay, as well as government pay. The defense has also argued that this standard must be applied to future medical expenses, while throwing in arguments of the Affordable Care Act and other potential insurance providers. Bermudez flatly rejected this contention and held that it was appropriate for plaintiff to establish the reasonableness of past medical expenses, which were not paid by insurance, with expert witnesses testifying as to the reasonableness of charges without regard to the amounts actually paid by various payors. The Court held that the plaintiff could also present the anticipated costs of future medical care with experts without being bound to payments typically made by insurance companies or governmental entities.

Valera v. Birdi 2015 WL 877793 – An unpublished decision

On February 27, 2015, Division One of the Fourth Appellate District issued this unpublished decision. Requests for publication were denied and the California Supreme Court declined to accept review. Therefore, the decision is not citable. However, it is included here since it provides a good example of a logical argument for the application or non-application of Howell.

Gabriel Varela had spent 26 years in the Navy and had just been selected to serve as a commander of a Navy missile destroyer ship. He was riding his bicycle home from work at the Naval Base when the defendant drove through an intersection directly into Varela’s path of travel. The jury awarded Varela $4,761,399 in damages, including $1,355,598 in future medical expenses. Varela waived any claim for past medical expenses.

Throughout trial, Birdi’s counsel persistently sought to introduce evidence that Varela could receive all his medical care through the Navy at no cost. The trial court consistently sustained the objections to such evidence, ruling that it would be a violation of the collateral-source rule. On appeal, Birdi sought a remittitur awarding Varela only one-third of the future medical care awarded by comparing the amounts billed and paid for past similar services.

The Court of Appeal reviewed California’s long adherence to the collateral-source rule and that the Howell court explained that it was not abrogating or modifying the collateral-source rule in its decision. The Court upheld the exclusion of the Tri Care collateral source. The Court held that where medical experts testified as to future medical care costs based upon what providers typically charge rather than amounts typically received through insurance or other payments was appropriate and not made inadmissible with respect to evaluating future medical expenses pursuant to Howell or Corenbaum.

Conclusion and prediction – Howell/Corenbaum

Bermudez is an important decision that finally provides some clarity to the issue of the reasonable value of medical care for an uninsured plaintiff and as to the measure of future damages for all plaintiffs. Hopefully, this signals that the Howell/Corenbaum pendulum has truly reached its extreme and is now swinging back to a more reasonable evaluation of a plaintiff’s past and future medical expenses.

I predict litigation will continue over the valuation of medical care provided through HMOs and defendants will continue to dispute plaintiff’s valuation of future medical care without taking into account various sources of payment to medical providers, such as Medicare, Medi-Cal, insurance, etc. in order to arrive at a lower, average rate for the cost of services.

Hospital liens

Hospital liens are statutory pursuant to the Hospital Lien Act (HLA) found at California Civil Code sections 3045.1-3045.6. Pursuant to the HLA, a hospital that treats a patient who has been injured by a third-party tortfeasor may assert a lien against any judgment, settlement or compromise recovered by that patient from the tortfeasor in the amount of its “reasonable and necessary charges.” (Civ. Code, § 3045.1.) Pursuant to the HLA, any hospital “which furnishes emergency and ongoing medical or other services to any person injured by reason of an accident or negligent or wrongful act . . . shall, if the person has a claim against another for damages on account of his or her injuries, have a lien upon the damages recovered or to be recovered, by the person to the extent of the amount of the reasonable and necessary charges of the hospital at any hospital affiliated health facility . . ..” (Civ. Code, § 3045.1.)

“The lien shall apply whether the damages are recovered, or are to be recovered, by judgment, settlement, or compromise.” (Civ. Code, § 3045.2.) A hospital’s recovery on the lien is, however, limited “to an amount which could be satisfied from 50 percent of the ‘amount recovered by the injured person from the tortfeasor.’ (Newton v. Clemons (2003) 110 Cal.App.4th 1, 6; Civ. Code, § 3045.4.)

The lien is not so much on the patient’s recovery, but a lien on the tortfeasor’s payment of any damages to the plaintiff. In order to assert the lien, a hospital need not provide notice of the lien to the injured person. However, the lien “shall not be effective . . . unless a written notice . . . is . . . . mailed . . . to each ‘tortfeasor’ known to the hospital. ...’” (Civ. Code, § 3045.3.)The tortfeasor who has knowledge of the lien and pays the injured person “after the receipt of the notice as provided by § 3045.3, without honoring the lien, “or so much thereof as can be satisfied out of 50 percent of the monies due under any final judgment, compromise, or settlement agreement,” then “shall be liable to the ‘lienholder’ for the amount of its lien claim in the notice which the hospital is entitled to receive as payment for medical care and services rendered to the injured person.” (Civ. Code, § 3045.4.)

Pursuant to Howell v. Hamilton Meats, supra, and State Farm Mutual Ins. Co. v. Huff, supra, the hospital’s charges being asserted under the lien must be reasonable, and the hospital has the burden to establish that its charges were both necessary and reasonable. (Huff, at pages 1469-1470.) The medical bills or charges themselves are insufficient evidence of the amount of the lien. (Id. at pp. 1471-1472.)

The patient/plaintiff must have an existing obligation to the lienholder in order for the lien pursuant to the hospital lien act to be valid.  The California Supreme Court has held that in order for a hospital to have a valid lien pursuant to the HLA, there must exist an “underlying debt owed by the patient to the hospital.” (Parnell v. Seventh Day Health System/West (2005) 35 Cal.4th 595 at 605.)

In Olszewski v. Scripps Health (2003) 30 Cal.4th 234, the hospital accepted Medi-Cal for the patient’s care and then asserted a lien in the patient’s personal injury action pursuant to Welfare & Institutions Code section 14124.791 for the difference between the amount Medi-Cal paid and the hospital’s customary charges. The court struck down section14124.791 as invalid because it was preempted by federal law which prohibits a provider who accepts Medi-Cal from looking to the patient for additional monies.

Similarly, in Parnell v. Seventh Day Adventist, supra, the hospital was attempting to enforce a lien under the Hospital Lien Act where the patient’s obligation for the medical care it received from the hospital had been fully satisfied pursuant to a pre-service agreement between the hospital and the plaintiff’s health care provider to accept the health care’s payment and co-pay as payment in full. The Court held that the hospital did not have a valid lien on plaintiff’s recovery under the HLA due to the lack of an underlying debt owed by Parnell to the hospital. The Court explained:

The Community Hospital’s contention that any recovery on a lien under the HLA comes from the tortfeasor – and not from the patient – does not alter our conclusion. As explained above, a lien under the HLA is simply a legal claim upon the property of another in satisfaction of a debt owed by a patient for medical services provided by the lien claimant. Thus, absent and underlying debt, the hospital may not recover on the lien even assuming that the recovery comes from the tortfeasor.

(Parnell, supra, 35 Cal.4th at pp. 607-608.)

The Parnell court went on to note that it was simply interpreting the contract between the hospital and Parnell’s health care provider. It noted that the hospital was free to negotiate the right to assert a lien under the HLA in the contractual arrangement with Parnell’s health care provider. The court noted:

If hospitals wish to preserve their right to recover the difference between usual and customary charges and the negotiated rate through a lien under the HLA, they are free to contract for this right. Our decision today does not preclude hospitals from doing so.

(Parnell, supra, 35 Cal.4th at p. 611.)

To date, few hospitals have taken advantage of this language in Parnell to allow such balance billing and assertion of a lien claim under the HLA. However, UC Davis is probably the most aggressive, having inserted this contractual entitlement into its provider agreements and it pursues such lien rights vigorously.

Checklist for negotiating hospital liens

1. Does the hospital have a valid lien? Has it accepted payment in full under a provider contract, Medicare, Medi-Cal, etc.? If it claims a contractual right to assert the lien pursuant to a contractual provision in the provider agreement, demand a copy of the agreement.
2. Did the hospital perfect its lien to the tortfeasor? (Civ. Code, § 3045.3)
3. The HLA states in three places that the amount sought under the HLA must be for “reasonable charges.” Can the hospital support its charges as necessary and reasonable under the Howell/State Farm v. Huff criteria?
4. Attorney liens for fees and costs are a prior lien to the HLA lien. (Cetenko v. United California Bank (1982) 30 Cal.3d 528; County of San Bernardino v. Calderon (2007) 148 Cal.App.4th 1103.)
5. A hospital’s recovery on a lien pursuant to the HLA is limited to 50 percent of the “amount recovered by the injured person from the tortfeasor.” (Newton v. Clemons (2003) 110 Cal.App.4th 1, 6; Civ. Code § 3045.4.)
6. Always obtain a full release from the hospital when negotiating an HLA lien. Otherwise, your client will remain responsible for the balance of the lien.

Government Code section 23004.1 provides a county (CMS) with a lien on any personal injury judgment. Pursuant to Mares v. Baughman (2001) 92 Cal.App.4th 672, by its unambiguous terms, Section 23004.1 only provides a lien right on judgments and not settlements, absent a county ordinance to the contrary.

In City and County of San Francisco v. Sweet (1995) 12 Cal.4th 105, the court held that there is no right to a Common Fund reduction for attorney’s fees and costs because the provider is a creditor of the plaintiff.

Although the government lien only applies to judgments, a county hospital has a backup position under the HLA to assert a lien against settlements.

Issues dealing with services to children

Services provided under the California Children’s Services (CCS) provide very strong lien rights under Health & Safety Code section 123872. Before a child is determined eligible, the applicant’s family agrees to repay CCS for any treatment to the extent of any recovery. Pursuant to Health & Safety Code section 123982, the court shall first order paid from any judgment or settlement the actual cost of the care to be furnished by CCS.

With respect to most other liens involving children, including hospital, physician or chiropractic liens, the Probate Court is vested with wide authority and discretion to determine the reasonable amount of expenses to pay out of the minor’s settlement. (Probate Code, § 3601; Goldberg v. Superior Court (1994) 23 Cal.App.4th 1378.) Note, however, that the parents could remain responsible for the unpaid bills.