Howell v. Hamilton Meats & Provisions 11/23/09 CA4/1

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State: California

Court: 1st District Court of Appeal 1st District Court of Appeal

Docket No: D053620

Case Date: 03/11/2010

Preview:Filed 11/23/09

CERTIFIED FOR PUBLICATION COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA

REBECCA HOWELL, Plaintiff and Appellant, v. HAMILTON MEATS & PROVISIONS, INC., Defendant and Respondent.

D053620

(Super. Ct. No. GIN053925)

APPEAL from an order of the Superior Court of San Diego County, Adrienne A. Orfield, Judge. Reversed and remanded.

LaFave & Rice, John J. Rice; Basile Law Firm, J. Jude Basile; Law Offices of J. Michael Vallee and J. Michael Vallee for Plaintiff and Appellant. Hinton, Alfert & Sumner, Scott H.Z. Sumner and Jeremy N. Lateiner for Consumer Attorneys of California as Amicus Curiae on behalf of Plaintiff and Appellant. Tyson & Mendes and Robert F. Tyson for Defendant and Respondent.

Greines, Martin, Stein & Richland and Robert A. Olson for Association of Southern California Defense Counsel as Amicus Curiae on behalf of Defendant and Respondent. Horvitz & Levy, David S. Ettinger and H. Thomas Watson for Association of California Insurance Companies and Personal Insurance Federation of California as Amici Curiae on behalf of Defendant and Respondent.

SUMMARY AND HOLDING In this case, we must decide whether a plaintiff who has private health care insurance in a personal injury case may recover, under the collateral source rule, economic damages for the amount of past medical expenses that her health care providers have billed, but which neither the plaintiff nor her health care insurer is obligated to pay because the providers have agreed, under contracts into which they have entered with the insurer, to acceptas payment in fullpayments in an amount that is less than the amount the providers have billed. Stated differently, is the difference (hereafter referred to as the negotiated rate differential)1 between (1) the full amount of the medical providers' bills, and (2) the lesser amount paid by the private health care insurer in cash payments to the

1 Amicus curiae Consumer Attorneys of California (CAC) refers to this difference as an "alternative payment rate discount." Amici curiae Association of California Insurance Companies and Personal Insurance Federation of California refer to this difference as "phantom 'expenses' that no one paid or ever will pay" and "the price discount." Amicus curiae Association of Southern California Defense Counsel refers to the difference as "the difference between the amount paid and the never-paid 'usual and customary' rate." 2

medical providers that the providers have agreed to accept as payment in full pursuant to their agreements with the insurer, a benefit within the meaning of the collateral source rule such that the plaintiff is entitled under that rule to recover the amount of the negotiated rate differential as part of her economic damages award? In this personal injury action, plaintiff Rebecca Howell's private health care insurance policy provided indemnity coverage for medical expenses she incurred for treatment of injuries she sustained in a vehicle accident caused by the negligent driving of an employee of defendant Hamilton Meats & Provisions, Inc. (Hamilton). Howell appeals an order granting Hamilton's posttrial motion to reduce by $130,286.90 the jury's special verdict award for her past injury-related medical expenses from $189,978.63, which was the full amount of her medical bills, to $59,691.73, the amount her medical providers Scripps Memorial Hospital Encinitas (Scripps) and CORE Orthopedic Medical Center (CORE) accepted as payment in full from Howell's health care insurer, PacifiCare PPO (PacifiCare). Howell contends the order should be reversed because (1) the reduction of the jury's award for her past medical expenses violates the collateral source rule, which (as we shall discuss more fully, post) generally bars at trial in a personal injury case evidence of compensation the plaintiff has received for her injuries from a source wholly independent of the defendant tortfeasor; and (2) Hamilton's motion was "procedurally improper and lacked sufficient evidence to support the claimed reduction." We hold that in a personal injury case in which the plaintiff has private health care insurance, the negotiated rate differential is a benefit within the meaning of the collateral source rule, and thus the plaintiff may recover the amount of that differential as part of 3

her recovery of economic damages for the past medical expenses she incurred for care and treatment of her injuries. Applying this holding to the instant case, we conclude the court erred by granting Hamilton's postverdict motion to reduce the jury's special verdict award for the injury-related medical expenses Howell incurred. Accordingly, we reverse the order. FACTUAL BACKGROUND A. Howell's Private Health Care Insurance Howell was seriously injured when the vehicle she was driving was struck by a truck driven by one of Hamilton's employees, who had negligently made an illegal U-turn across the lane in which Howell was traveling. At the time of the accident, Howell had private health care insurance through PacifiCare. According to Howell, PacifiCare agreed to indemnify her for any medical charges covered by her health plan in exchange for her premium payments, subject to her responsibility for deductibles and copayments; and PacifiCare, as a regular part of its business practice, entered into contractual agreements with hospitals and other health care providers, including Scripps and CORE, to satisfy any bills incurred by PacifiCare plan members who obtained care from those providers. Howell underwent two fusion spinal surgeries, as well as surgical procedures that took bone from her hip in an attempt to repair her neck and repaired the graft site on her hip.

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B. Howell's Financial Responsibility Agreements with Her Medical Providers Before she received treatment from Scripps and CORE, Howell executed written agreements in which she agreed to be financially responsible for all charges for the medical services they provided to her. Specifically, Howell's agreement with Scripps provided that in consideration for all services she received at a Scripps facility, she was "obligated to pay the Facility's usual and customary charges for such services." She expressly acknowledged in that agreement that "she may be asked to execute a separate financial agreement for all amounts deemed to be [her] responsibility and/or not covered under an insurance policy, health care service plan, managed care program or any third party payer not a party to this agreement." An assignment of benefits clause in the agreement provided that Howell "authorize[d] direct payment to the Facility of any insurance or reimbursement from third party payers otherwise payable to or on behalf of the patient for services obtained at the Facility, at a rate not to exceed the Facility's usual and customary charges." Howell also agreed that she "remain[ed] financially responsible for charges due, but not paid, under this assignment of benefits." Howell's agreement with CORE provided it was "[her] responsibility to pay any co-insurance, or any other balance not paid for by [her] insurance." The agreement contained an assignment of benefits clause, under which she "assign[ed] all medical and/or surgical benefits, to include major medical benefits to which [she was] entitled, including Medi Care, private insurance, and other health plans to the provider." (Italics added.)

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PROCEDURAL BACKGROUND A. Hamilton's Motion In Limine Hamilton filed a motion in limine seeking to exclude at trial any evidence of, or reference to, those portions of Howell's medical bills that were not paid either by PacifiCare, or by Howell as a copayment. Hamilton argued that the decision in Hanif v. Housing Authority (1988) 200 Cal.App.3d 635 (Hanif) "preclude[d] [Howell] from seeking to recover as medical expenses amounts billed, but not ultimately paid by PacifiCare." Howell opposed the motion, arguing that under the collateral source rule articulated in Helfend v. Southern California Rapid Transit Dist. (1970) 2 Cal.3d 1 (Helfend), "the gross amount of all medical bills, not any lesser amount, should be presented to the jury." Following oral argument, the court denied Hamilton's in limine motion, ruling that Howell was entitled to present at trial evidence of the full amount of the medical bills. The court, however, on a defense motion under Hanif, supra, 200 Cal.App.3d 635, deferred to a posttrial proceeding the determination of whether the jury's award of damages for Howell's past medical expenses should be reduced by any amount her medical providers may have "compromised their billing." B. Trial and Special Jury Verdict In their joint trial readiness conference report, the parties stipulated that the only issue to be determined at trial was the amount of damages Howell suffered as a result of the accident caused by the admitted negligence of Hamilton's driver. The report and 6

Howell's trial exhibit list identified as exhibit No. 57 Howell's "Summary of Plaintiff's Past Medical Expenses," which itemized 19 medical expenses and indicated that those expenses totaled $189,978.63. Her trial exhibit list also indicated that copies of the billing records were attached to that exhibit. During the trial, Dr. Timothy Peppers, who performed Howell's surgeries, testified on her behalf. After Dr. Peppers testified about his qualifications, Howell's injuries, and the medical treatment she received for those injuries, Howell's counsel showed him exhibit No. 57 and the attached billing records. Dr. Peppers testified that to the best of his knowledge the summary and billing records were a fair and reasonable representation of the medical billings. Howell's husband, James Michael Vallee, also testified on her behalf. He indicated he had been keeping track of her injury-related medical bills, which to date totaled $189,978.63, as shown in exhibit No. 57. The jury returned a special verdict that awarded to Howell compensatory damages in the total amount of $689,978.63, which included $189,978.63 for "[p]ast economic loss, including medical expenses," $150,000 for "[f]uture economic loss, including medical expenses," $200,000 for "[p]ast noneconomic loss (including physical pain, mental suffering, loss of enjoyment of life, disfigurement, physical impairment, inconvenience, grief, anxiety, humiliation, and emotional distress," and $150,000 for "[f]uture noneconomic loss."

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C. Hamilton's Motion To Reduce the Special Verdict for Past Medical Expenses Before the court entered judgment, Hamilton filed a motion under Hanif, supra, 200 Cal.App.3d 635 and Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th 298 (Nishihama) seeking an order reducing the jury's special verdict for Howell's past medical expenses by $130,286.90 (i.e., from $189,978.63 to $59,691.73). In its motion papers, Hamilton argued it was entitled to the claimed reduction under Hanif and its progeny because the amount was neither incurred nor expended for the medical services that Scripps and CORE provided to Howell in this matter. In support of its motion, Hamilton submitted the declarations of Mourence Burris, Scripps's supervisor of customer service and collections from third parties, and Betsy Engstrom, who was employed in the accounting department of CHMB, a billing company that provided medical billing services for CORE. In his declaration, Burris indicated that Scripps's billing records showed that Scripps waived or "[wrote] off" the sum of $94,894.42 related to Howell's "surgeries and related treatment as a result of the agreement with PacifiCare," no outstanding balance remained on Howell's account, and no further collection would be pursued. In her declaration, Engstrom indicated that the entries in CORE's bill related to the services CORE provided to Howell showed that CORE had waived or "written off" the sum of $35,392.48 pursuant to its agreement with PacifiCare, and no collection from Howell would be pursued by either CORE or CHMB for the written off amount. The Burris and Engstrom declarations thus showed the total

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amount of the negotiated rate differential written off by Scripps and CORE was $130,286.90.2 1. Howell's opposition to Hamilton's motion Howell filed written opposition to the motion, contending that (1) as she was not a Medi-Cal beneficiary and she was suing a private defendant, she was permitted under the collateral source rule and the applicable measure of damages to recover the full amount of the reasonable "cost" or "value" of the past medical expenses paid or incurred as a result of her injuries and not just what her private health care insurer paid to her medical providers; and (2) under the collateral source rule, the court should exclude evidence of the benefits PacifiCare "paid" to Howell's health care providers. Howell did not submit any evidence in support of her opposition to Hamilton's motion, nor did she file any evidentiary objections to the Burris and Engstrom declarations filed in support of Hamilton's motion. D. Judgment The court entered a judgment on the special verdict against Hamilton, awarding Howell economic damages in the amount of $339,978.63, including the sum of $189,978.63 for past medical expenses. E. Oral Arguments Regarding Hamilton's Motion At the hearing on Hamilton's motion, which the court referred to as the "Hanif motion," Howell's counsel argued that unlike the plaintiff in Nishihama, supra, 93

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$94,894.42 + $35,392.48 = $130,286.90. 9

Cal.App.4th 298, Howell disputed the amount that her health care insurer "paid" to the medical providers and objected that Hamilton's presentation of evidence of what Howell's insurer paid to those providers violated the collateral source rule. Counsel also asserted that under Hanif and Nishihama, Howell was entitled to recover for her past medical expenses the amount paid or incurred; that, under Parnell v. Adventist Health System/West (2005) 35 Cal.4th 595 (Parnell), the amount incurred is the total amount of debt the patient incurs when she is treated by her medical providers, and, under the contracts between the private health insurer and the medical providers, what the insurer "pays" the medical providers includes both cash payments and any other consideration given in the form of "in-kind benefits." In support of the motion, Hamilton's attorney argued that Nishihama was controlling; Howell's medical bills had been "discounted" and thus she did not owe the full billed amount of about $189,000 charged in the medical bills; she incurred no debt for the negotiated rate differential because her bills were extinguished and her accounts had a zero balance, and she was not entitled under Nishihama to recover the amount of the negotiated rate differential because that was the portion of the bills her insurer did not pay to Scripps and CORE; and the collateral source rule did not apply to that unpaid portion of the bills. In rebuttal, Howell's counsel claimed the declarations submitted by Burris and Engstrom in support of Hamilton's motion were not evidence because "they're hearsay" and stated he doubted they "[had] ever actually seen the contracts" between PacifiCare and Howell's medical providers. Thus, he asserted, there was no competent evidence of 10

what PacifiCare paid. Counsel repeated his claim that the word "paid" meant more than just the cash payment and included the in-kind benefits the insurer "paid" to the medical providers. Howell's attorney also argued that to determine what the insurer "paid" to the providers would require a finding of fact, and such a finding would violate the collateral source rule, which precludes evidence of the amount paid by a collateral source. F. Order and Notice of Ruling The court granted Hamilton's motion after taking the matter under submission. The court's minute order stated: "The Court grants [Hamilton's] motion to reduce [Howell's] past medical specials to reflect the amount the medical providers accepted as payment in full of the medical bills. Contrary to [Howell's] assertions, reaching this amount does not violate the collateral source doctrine, as evidence of how or why an amount less than the full bill was accepted as payment in full is unnecessary to make this determination. Further, the trier of fact relied on evidence of the gross amount billed to [Howell], and thus had an accurate understanding of the severity of [her] injuries when it rendered its verdict. Thus a post-trial motion to reduce past medical specials to the amount that was actually paid and considered payment in full does not violate the collateral source doctrine; rather it embodies the well-established principle that a plaintiff is entitled to recover an amount that would make her whole, but not overcompensate her. . . ." Hamilton's counsel served and filed a notice of the court's ruling, which included a copy of the court's minute order, and indicated that the amount of the judgment was reduced by $130,286.90 from $689,978.63 to $559,691.73. Howell thereafter appealed the order.

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DISCUSSION I THE COURT'S POSTVERDICT REDUCTION OF THE JURY'S ECONOMIC DAMAGES AWARD FOR HOWELL'S PAST MEDICAL EXPENSES VIOLATED THE COLLATERAL SOURCE RULE3 Howell argues the order reducing the jury's award of damages for her past medical expenses from the full amount of the medical charges billed by Scripps and CORE ($189,978.63) to the amount of the cash payments her health care insurer, PacifiCare, paid to those medical providers pursuant to its agreements with them ($59,691.73), should be reversed because the reduction violates the collateral source rule. In support of this argument, Howell asserts that when she executed the written financial agreements with Scripps and CORE before she received treatment from them, she became financially liable for, and thus suffered compensable detriment by incurring, the full combined charges these medical providers billed for the services they provided. She also asserts she received two collateral source benefits from PacifiCare: (1) the reduced "alternative rate" cash payments in the total amount of $59,691.73 that Pacificare paid to Scripps and

3 For discussions of the collateral source rule in medical insurance cases, see Daniel P. Barer's The Collateral Conundrum: Olsen v. Reid Frames the Hanif/Nishihama Controversyand Suggests How It Will Turn Out, and Scott H.Z. Sumner's Medical Special Damages 'Incurred' Under California Law: The Collateral Source Rule, Law of Contracts, and the Discount Myth, both of which were recently published in the California State Bar Litigation Section's journal, California Litigation (No. 3 2008) volume 21, at pages 5-11 and 12-18, respectively. 12

CORE on her behalf;4 and (2) the negotiated rate differential, which she calls "other contractual consideration," valued at $130,286.90 (i.e., the remaining balance of the combined medical bills) that PacifiCare "paid" to Scripps and CORE on her behalf in the form of "non-cash benefits and services" (such as "preferred provider" listings that are endorsements of, and advertisements for, the medical providers; a guaranteed flow of patients who are members of PacifiCare's health care plan; and timely payments from pooled premiums that reduces the number of collection actions the providers must bring to collect payments from their patients). Together, she maintains, these two collateral source benefits of her private health insurance resulted in the satisfaction or discharge of the medical services debt she incurred in the full billed amount of $189,978.63; and thus, under the collateral source rule articulated in Helfend, supra, 2 Cal.3d 1, and the Restatement Second of Torts, section 920A, comment b (discussed, post), Hamilton should not have received the benefit of her thrift and foresight in procuring health insurance through the court's postverdict reduction of the damages award for the past medical expenses she incurred as a result of the negligent driving of its employee. Thus, she argues, the court's order reducing the jury's award of damages for her past medical expenses by $130,286.90the negotiated rate differential that she, Hamilton, and the trial court refer to as the "writtenoff" balance or portion of her medical billsviolates the collateral source rule. 4 Hamilton acknowledges that the collateral source rule applies to PacifiCare's cash payments to Scripps and CORE on Howell's behalf, and that the jury properly awarded her economic damages in the amount of $59,691.73 for this portion of Howell's medical bills. 13

We conclude the court's order granting Hamilton's postverdict motion to reduce the jury's special verdict award for the injury-related medical expenses that Howell incurred, violated the collateral source rule. A. Applicable Legal Principles We begin by reviewing applicable California law regarding both the measure of damages in a personal injury case such as this and the collateral source rule. 1. Measure of damages Civil Code5 section 3333 provides that "[f]or the breach of an obligation not arising from contract, the measure of damages, except where otherwise expressly provided by this code, is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not." (Italics added.) Section 3281 provides that "[e]very person who suffers detriment from the unlawful act or omission of another, may recover from the person in fault a compensation therefor in money, which is called damages." (Italics added.) Section 3282 defines the term "detriment" as "a loss or harm suffered in person or property." Section 1431.2, subdivision (b)(1) defines the term "economic damages" as "objectively verifiable monetary losses including medical expenses, loss of earnings, burial costs, loss of use of property, costs of repair or replacement, costs of obtaining substitute domestic services, loss of employment and loss of business or employment opportunities." (Italics added.)

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All further statutory references are to the Civil Code unless otherwise specified. 14

In conformity with these statutory provisions, the courts in California have held that the economic damages a plaintiff may recover in a personal injury action for past medical expenses are limited to a reasonable amount that was paid or incurred, whether by the plaintiff or a collateral source (such as the plaintiff's health care insurer), for reasonably required medical care and services that the plaintiff received and were attributable to the defendant's tortious conduct. (Melone v. Sierra Railway Co. (1907) 151 Cal. 113, 115 ["the correct measure of damage . . . is . . . the necessary and reasonable value of such services as may have been rendered him[;] [s]uch reasonable sum, in other words, as has been necessarily expended or incurred in treating the injury"]; Hanif, supra, 200 Cal.App.3d at p. 640 ["a person injured by another's tortious conduct is entitled to recover the reasonable value of medical care and services reasonably required and attributable to the tort"]; see also Katiuzhinsky v. Perry (2007) 152 Cal.App.4th 1288, 1290 ["An injured plaintiff in a tort action cannot recover more than the amount of medical expenses he or she paid or incurred, even if the reasonable value of those services might be a greater sum."]; CACI No. 3903A ["To recover damages for past medical expenses, [plaintiff] must prove the reasonable cost of reasonably necessary medical care that [he/she] has received."]; 6 Witkin, Summary of Cal. Law (10th ed. 2005) Torts,

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