Out of network medical costs could add insult to plaintiff’s injuries

Personal injury litigation places a central focus upon medical specials, litigation-oriented medical reports, and depositions and testimony by treating physicians and medical experts. Simple economics preclude such costs from being incurred on a pay-as-you-go basis; rather attorneys, litigants and medical providers rely upon such devices as liens against anticipated judgments or settlements to secure payment. Nager v. Allstate Ins. Co., 83 Cal. App. 4th 284, 291, 99 Cal. Rptr. 2d 348, 353 (2000), as modified (Aug. 23, 2000).

However, as the court stated in Lovett v. Carrasco (1998) 63 Cal.App.4th 48, 57, 73 Cal.Rptr.2d 496, "some medical providers with liens may overtreat patients to run up medical special costs, thereby increasing their chances of getting paid. Nager v. Allstate Ins. Co., 83 Cal. App. 4th 284, 291, 99 Cal. Rptr. 2d 348, 353 (2000), as modified (Aug. 23, 2000).

Further, the Nager court acknowledged: "...medical liens are frequently reduced during the process. Nager v. Allstate Ins. Co., 83 Cal.App. 4th 284, 291, 99 Cal. Rptr. 2d 348, 353 (2000), as modified (Aug. 23, 2000).

There is no debate that when a person is injured and has no ability to pay for medical assistance that is really required, a lien to provide for compensation of the medical providers may be necessary.

However, when an injured person has insurance, and that insurance may in fact provide coverage for the services and treatment that may be necessary, who is there to protect the injured person from unscrupulous practices?

When an injured person - who has insurance - is referred to doctors or medical providers by his or her attorneys and encouraged not to use the available insurance, and is further encouraged by the attorneys to sign a lien thus becoming personally liable for hundreds of thousands of medical charges, who explains the potential outcome to the injured person?

Who explains to the client that if you should lose the trial, you will now be faced with potential financial ruin?

Who explains to the client the potential conflict that now exists between the attorney? What conflict? The fact that at the urging of the attorneys, plaintiff forgoes use of available insurance - and this is done for the intended objective of increasing the amounts of monies paid to the attorneys.

The attorney-client relationship imposes upon the attorney the obligation to owe the duty to use skill, prudence and diligence in the performance of the tasks he/she undertakes for his client. Further, this fiduciary relationship with the client is one that binds the attorney to most conscientious fidelity. The relation between attorney and client is a fiduciary relation of the very highest character and binds the attorney to most conscientious fidelity. § 33:13. Fiduciary duty owed to client, Cal. Civ. Prac. Torts § 33:13.

When the client is placed into a precarious financial position at the urging of the attorneys whose acknowledged purpose is to attempt to increase the damages and potential recovery in the plaintiff's recovery by the attorney, is this a relationship of "utmost and conscientious fidelity?"

The doctors are now called by the plaintiff's attorneys to testify. These doctors tell the jury that of course they will seek to recover 100% of their charges from the plaintiff no matter what the results are at trial.

Subsequently the verdict comes in and the plaintiff either loses the trial or receives only a fraction of what the total charges are. Now what?

Plaintiff is now faced with potential disaster, financial ruin, and bankruptcy - and no one told the plaintiff that they could have used available insurance and avoided this incredible financial exposure.

It only takes one time observing a Plaintiff who suddenly comes to the realization for the first time, during the trial, that as a young couple with two children to support, that they may now have the additional burden of paying for medical charges which would not have been necessary had they been able to use existing insurance - to realize this system has to be changed.

How did we get to this point?

In 2011, the California Supreme Court decided Howell v. Hamilton Meats & Provisions, Inc., 52 Cal. 4th 541, 565, 257 P.3d 1130, 1145 (2011), providing that if an injured plaintiff's medical bills are paid for by the plaintiff's insurance, then the plaintiff may not "blackboard" to the jury the total amounts charged by the provider.

In Howell, the California Supreme Court concluded that a plaintiff seeking recovery in tort could not recover as damages the difference between the amount billed by a medical provider and the amount that provider had accepted as full payment pursuant to a pre-existing contract with an insurer (the "negotiated rate differential"). 52 Cal. 4th at 548, 555. The court reasoned that the plaintiff did not "incur" the full charges and "did not suffer any economic loss" in the amount of the negotiated rate differential, because she would never be required to pay the negotiated rate differential. Id. at 548. The Howell court also held that a negotiated rate differential between a medical provider and an insurer was not a "collateral source," because it was not paid to or on behalf of the plaintiff as compensation for her injuries. Id. at 564-65.

Four years later, in Bermudez v. Ciolek (2015) 237 Cal.App.4th 1311, 1330-1331, the Fourth Division, District 3, Court of Appeals held that where an injured plaintiff lacks insurance then the entire amount of the medical charges is admissible.

On appeal, defendant and amicus argued that the charges were not tethered to any requirement or evidence as to reasonable market value. It must be noted, however, that in Bermudez, the defendant made no objections nor filed any motions in limine challenging the admission of the Plaintiff's medical bills. Bermudez v. Ciolek (2015) 237 Cal.App.4th 1311, 1330-1331.

Three years later, the Fourth District, Division 3 extended the holding of Bermuda, in Pebley v. Santa Clara Organics, LLC, 22 Cal. App. 5th 1266, 1266-68, 232 Cal. Rptr. 3d 404, 406 (2018). The court in Pebley established that even if the Plaintiff was insured, the Plaintiff can choose not to use available insurance and be treated as "uninsured" under the holding of Bermudez. The Court in Pebley further held that a defendant may not argue to the jury that plaintiff failed to mitigate his/her damages by not using available insurance.

As the court further held in Pebley v Santa Clara Organics, LLC, supra, 22 CA5th at 1269, 1276-1278, an injured plaintiff who chooses treatment by physicians and medical facility providers outside of the plaintiff's insurance plan is considered to be uninsured, rather than insured, for purposes of determining his or her economic damages. This holding is curious in that there was no discussion whatsoever in Pebley as to whether the "lien doctor" could or even would accept insurance for payment of the medical charges.

The court in Pebley held that of course a plaintiff is free to use any medical provider he/she wants to, particularly if there is surgery contemplated, so that the plaintiff may feel comfortable with or have confidence with the surgeon. Of course, in these referral situations the reality is that a plaintiff usually only has one or two appointments with the referral surgeon before they undergo major surgery with lifetime effects and usually knows nothing more about them then what their attorneys tell them.

In Pebley v. Santa Clara Organics, LLC, the appellate court stated: "Here we are confronted by an insured plaintiff who has chosen to treat with doctors and medical facility providers outside his insurance plan. We hold that such a person shall be considered to be uninsured, as opposed to insured, for the purpose of determining economic damages." Pebley v. Santa Clara Organics, LLC (2018) 22 Cal.App.5th 1266, 1269, 232 Cal.Rptr.3d 404, 406.

The Pebley court, however, acknowledged that Pebley had insurance [with Kaiser] but that he "elected" to obtain medical services outside his insurance plan. The court further held that the fact that Pebley "chose to pay for those services out-of-pocket, rather than use his insurance, it irrelevant...and that a tortfeasor may not "force" a plaintiff to use his or her insurance to obtain medical treatment for injuries caused by the tortfeasor.

The question, however, is not whether the defendant "forced" the plaintiff to not use his own insurance or to treat outside of his Kaiser plane, nor that the plaintiff "elected" to not use his own insurance. The real question here is if the "choice" to not use his own insurance and "pay for the expense out-of-pocket" [thus to potentially face hundreds of thousands of medical expenses] was truly as a result of the plaintiff's knowing, intelligent and free choice.

The effect of the courts' rulings in Bermudez and Pebley is to bypass and essentially "undo" the holding of Howell.

In fact, as the court pointed out in Pebley, this was exactly the purpose of referring plaintiffs to doctors chosen by plaintiff attorneys and to then have the medical bills guaranteed by liens signed by the plaintiff.

The court referred to an Internet article co-written by one of Pebley's attorneys. The article notes that "[t]ypically, medical liens in personal injury cases have been used where the plaintiff is uninsured, or where the insurance provider will not cover or refuses to authorize recommended medical care."

The authors propose, however, that insured plaintiffs use the lien form of medical treatment, which "effectively allows the plaintiff and his or her attorney to sidestep the insurance company and the impact of Howell, Corenbaum and Obamacare." Pebley v. Santa Clara Organics, LLC, 22 Cal. App. 5th 1266, 1270, 232 Cal. Rptr. 3d 404, 407 (2018).

What a plaintiff doesn't know can hurt them

What a plaintiff doesn't know when asked to sign a lien and undergo surgery by attorney-referred doctors precludes any client from entering into such agreements knowingly.

None of the cases cited in this area address the real issue of the potential conflict between an attorney wishing to increase the potential monetary recovery in the case and the client who has no knowledge of the process and agrees to forgo the use of his or her available insurance at the urging of the attorney.

The process as to how the plaintiff signs a lien and agrees to undergo major surgery is quite simple. Plaintiff goes to an attorney. The attorney tells the client, go to Dr. so-and-so. Dr. so-and-so says surgery is necessary. The doctor's office then sends a lien to the plaintiff's attorneys who then tell the plaintiff to sign it. The doctor performs the surgery, and the client now personally incurs charges of thousands and thousands of dollars. Period.

The argument here is not that defendant "forced" or did not force plaintiff to decide to forgo the use of available insurance or to receive treatment within his or her insurance plan. The question raised herein is whether that "choice" was made knowingly and intelligently and whether the attorney has an ethical obligation to fully advise the client of the risks of not using available insurance - and whether consent ought to be in writing.

What the plaintiff doesn't know is that these attorneys may have referred numerous plaintiffs to Dr. so-and-so and usually surgery is the recommended result, which, of course, potentially results in a larger verdict or settlement.

What the client doesn't know is that referral evidence is relevant to the question of the reasonable value of the lien-physicians' medical care because it may show bias or financial incentives on the part of the lien-physicians.

If a lien-physician wants future referrals from a lawyer and understands that the lawyer benefits from inflating a client's medical bills, that incentive might encourage the lien-physician to inflate its current bill to please the lawyer and win future referrals. Qaadir v. Figueroa, 67 Cal. App. 5th 790, 808, 283 Cal. Rptr. 3d 97, 112 (2021), as modified (Aug. 16, 2021), review denied (Nov. 10, 2021).

There is no oversight as to whether this surgery is actually necessary. There is no oversight as to the reasonableness of the provider's charge, and there is no oversight as to how the plaintiff can minimize the potential hundreds of thousands of dollars the plaintiff will now be liable for when he/she signs the lien. The client is never told that the doctor the plaintiff is being referred to almost always recommends surgery - which is why they are being referred to these specific doctors.

What the client further doesn't know is that by signing the liens he/she is agreeing to pay the medical provider back based on the inflated amount of the charges as reflected by the lien.

What the client doesn't know is that uninsured patients are often billed higher amounts than insured patients. See George A. Nation III, Healthcare and the Balance-Billing Problem: The Solution Is the Common Law of Contracts and Strengthening the Free Market for Healthcare, 61 Vill. L. Rev. 153, 153-54 (2016); Tamara R. Coley, Extreme Pricing of Hospital Care for the Uninsured: New Jersey's Response and the Likely Results, 34 Seton Hall Legis. J. 275, 307 (2010). Physicians charge uninsured patients, on average, more than twice what they charge insurers. Johanna Catherine Maclean et al., Health Insurance Expansions and Providers' Behaviors: Evidence from Substance-Use-Disorder Treatment Providers, 61 J.L. & Econ. 279, 286 (2018). Verci v. High, 2019 IL App (3d) 190106-B, ¶ 30, 161 N.E.3d 249, 256.

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What the client doesn't know is that less than 5% of hospital patients pay the full amounts charged. See: George A. Nation III, Obscene Contracts: The Doctrine of Unconscionability and Hospital Billing of the Uninsured, 94 KY. L.J. 101, 104 (2005) (Labeling hospital charges as "regular, 'full, or 'list, [is] misleading, because in fact they are actually paid by less than five percent of patients nationally.").

What the client doesn't know and isn't being told is that he or she has signed a lien reflecting the full amounts charged by the provider - and that this amount does not reflect the value of the services in the marketplace. The scope of the rates accepted by or paid to [the provider] by other payors indicates the value of the services in the marketplace. From that evidence, along with evidence of any other factors that are relevant to the situation, the trier of fact can determine the reasonable value of the particular services that were provided, i.e., the price that a willing buyer will pay, and a willing seller will accept in an arm's length transaction. Children's Hosp. Cent. California v. Blue Cross of California, 226 Cal. App. 4th 1260, 1275, 172 Cal. Rptr. 3d 861, 873 (2014), in other words, the "reasonable market value" of such services.

It has long been the law that the reasonable value of goods and services is not the billed, invoiced, listed or charge master price amount, but the amount actually accepted by the health care provider for said goods and services. The value of a good or service is not what a vendor or seller claims it to be, or charges, it is what is actually paid in a fair-market exchange.

Finally, what the client is not told is that the full amount billed, but unpaid, for past medical services is not relevant to the reasonable value of the services provided. Ochoa v. Dorado, 228 Cal. App. 4th 120, 135, 174 Cal. Rptr. 3d 889, 901 (2014); State Farm Mutual Automobile Ins. Co. v. Huff (2013) 216 Cal.App.4th 1463, 1471-1472, 157 Cal.Rptr.3d 863 (State Farm) -- State Farm concluded that an unpaid hospital bill based on the provider's standard medical charges was not evidence of the reasonable value of the services provided. (Id. at p. 1472. Note also that the patient in State Farm was uninsured]; Corenbaum v. Lampkin (2013) 215 Cal.App.4th 1308, 156 Cal.Rptr.3d 347 (Corenbaum).

In fact, Plaintiff is not informed that "reasonable value" is not determined by the amounts charged by the provider, but they must be determined based on market value.

The California courts have adopted the Restatement Second of Torts standard: "[Restatement] [s]ection 911 articulates a rule, applicable to recovery of tort damages generally, that the value of property or services is ordinarily its 'exchange value, 'that is, its market value or the amount for which it could usually be exchanged." (Howell, 52 Cal.4th at p. 556, emphasis added.) Thus, under Howell, the reasonable value is "the exchange value of medical services the injured plaintiff has been required to obtain." (Id. at p. 562; see Markow v. Rosner (2016) 3 Cal.App.5th 1027, 1050 [Howell "endorsed a market or exchange value as the proper way to think about the reasonable value of medical services"]. See: Cuevas v. Contra Costa Cnty., 11 Cal. App. 5th 163, 179, 217 Cal. Rptr. 3d 519, 532 (2017): "Our Supreme Court has endorsed a market or exchange value as the proper way to think about the reasonable value of medical services. [Citation.] This applies to the calculation of future medical expenses. [Citation.]

CONCLUSION

As one of Pebley's attorneys acknowledged - the whole purpose of the use of the liens was to bypass the holding in Howell and to allow the entire amount of the charges by the attorney-chosen medical providers to be used at trial in an effort to increase the potential recovery in the case. The more medical expenses one can introduce to the jury the greater the potential verdict.

What is unfortunately overlooked in this scenario is that the attorney who recommended that the client not use available insurance in an attempt to increase the potential recovery does not face any repercussions or financial ruin if the plaintiff does not succeed at trial.

It may be necessary for the California State Bar to consider requiring attorneys to obtain written affirmation from their clients that they were informed that they are not required to use the attorney-chosen doctors, nor are they required to forgo the use of any available insurance they might have had at the time of the incident to cover the potential future medical expenses.

California already requires that the attorney obtain consent from the client in writing when there is a potential conflict with the representation of the client and another client. i.e., see: California Rules of Professional Conduct, Rule 1.7; Rule 1.8.1.

When it comes to the potential financial ruin of their own clients, it only makes sense that a client must be fully informed and aware as to exactly what is going on so that the client may make a fully informed choice.

Such protections must be afforded to a client who is being encouraged by his or her attorneys to forgo the use of available insurance and agree to potentially life-changing medical procedures in an attempt to increase the potential monetary recovery - in the interests of the attorneys. The person who is going to suffer the most - and potentially for the rest of his/her life is the plaintiff who is now faced with hundreds of thousands of medical charges, past and in the future - and this is the person who knows the last about the legal system.

The California State Bar owes a duty to protect these individuals who have little sophistication of the legal system, and to those who have little knowledge of how the lien system works and to those who may have little understanding as to how the process of recovery of damages results.

It may be necessary for the protection of the client that the client acknowledges in writing that they were advised they were not required to use the attorney-chosen doctors and to further acknowledge that the client was advised that he/she may be potentially faced with financial distress if plaintiff does not recover sufficient amounts at trial to cover the thousands of dollars in medical bills the plaintiff has now incurred as reflected by the lien the client signed with the provider. For example:

Q: Plaintiff, do you realize that you have the right to choose any physicians you want in this case?

A: No/Yes.

Q: Do you also understand that you are not required to use any physicians recommended to you by your attorneys?

A: No/Yes.

Q: Do you further understand that you are entitled to get a second opinion as to any medical advice provided by any of the physicians your attorney referred you to?

A: No/Yes.

Q: Do you understand that you have the right to use your own insurance to pay for any costs incurred in the provision of medical expenses to you in this case?

A: No/Yes.

Q: Do you further understand that you may choose to not use your available insurance to pay for all of the medical expenses incurred in this case?

A: No/Yes.

Q: Do you further understand that if you do not use your own insurance to pay for the medical charges in this case incurred by you that you may be personally liable for the entire medical charges in this case, which may exceed several thousands of dollars?

A: No/Yes.

Q: And do you further understand that whatever happens at trial you cannot go back and offer your insurance to try to pay the medical charges you have incurred in this case?

A: Yes/No.

Q: Do you further understand that your treating doctors are requesting/are entitled to recover 100% of their charges if they establish that they are reasonable and necessary for this case?

A: No/Yes.

Q: Have you been offered anything to obtain your signature on the Lien Agreement?

A: No/Yes.

Q: And you're signing the Lien Agreement(s) freely, knowingly and voluntarily, is that correct?

A: No/Yes.

Q: Do you have any questions as to the Lien Agreement - what it means and what effect it may have in this case?

A: No/Yes.

It is time for the State Bar to investigate these issues. This conflict between the best interests of the client and the self-interests of their attorneys is a matter that can no longer be ignored. Individuals who are about to enter in such lien agreements must be fully advised of their rights and potential issues and their consent must be obtained in writing.