The court's decision in Dodd v. Cruz & Medical Finance, LLC (2014) DJDAR 1530, handed down on February 5, 2014, held that critical information from third party medical lien purchasers is discoverable because it is relevant to the "reasonable value" of past medical services provided.
Notwithstanding the recent favorable rulings in Howell v. Hamilton Meats (2011) 52 Cal. 4th 541, holding that a plaintiff can only recover the amounts paid for past medical treatment, rather than what was billed, and in Corenbaum v. Lampkin (2013) 215 Cal. App. 4th 1308, holding that the billed amounts for past medical treatments were not admissible at trial for any purposes whatsoever, the Achilles heel for Defendants remains those cases where medical treatment (usually directed by the plaintiff's attorney) was provided to the plaintiff on a lien and arguably is "unpaid" as of the time of trial. The Supreme Court in Howell held that a plaintiff can recover as damages the full billed amount of past medical treatment if it remained unpaid as of the date of trial.
However, as we know, the custom and practice of healthcare providers that provide treatment on a lien to plaintiffs in personal injury lawsuits is to sell their lien or account receivable ("A/R") to a finance company or factoring company at a significant discount from the billed or "book" amount. The court's decision in Dodd provides a legal foundation for defendants to conduct discovery on both the healthcare provider and the finance company to whom the liens were sold to determine the amount the liens were sold for, and then rely on that information to argue that the plaintiff's recovery for this treatment should, in accordance with the principles enunciated in both Howell and Corenbaum, be limited to the amount accepted in satisfaction of the lien.
Dodd and Cruz were involved in a motor vehicle accident. Dodd contends he sustained a shoulder injury, specifically a torn rotator cuff. He initially received treatment for this injury at a medical center operated by Kaiser Permanente. Subsequently, Dodd underwent a shoulder surgery at Coast Surgery Center of South Bay ("Coast"). Cruz contends that Dodd's attorney referred him to Coast Surgery.
Before the surgery, Dodd did not know what Coast's charges for the procedure would be. He did know, however, it would be on a lien basis. Dodd later learned Coast's bill was between $40,000 and $50,000.
On the same day as Dodd's surgery, Coast sold its A/R and lien against Dodd for payment of its charges to Medical Finance, LLC ("MEDFI"). MEDFI claims that it is in the business of purchasing accounts receivable from businesses, including healthcare providers, "at a discount." According to its president, MEDFI "expects to be paid" by Dodd for 100% of the "book value" of the healthcare provider's charges regardless of what the court or jury decides is the reasonable cost. Nothing in the record indicated Dodd agreed that the amount of MEDFI's lien would be the full amount of Coast's charges.
After the litigation commenced, Cruz's attorney served MEDFI with a deposition subpoena for production of business records, including any "lien contracts" with Coast and any evidence of the amount MEDFI paid for its lien on Dodd's recovery, if any, against Cruz. MEDFI resisted the deposition subpoena. After a lengthy meet and confer process was unsuccessful in resolving the dispute, MEDFI filed a motion to quash Cruz's subpoena and sought monetary sanctions against Cruz and her counsel. The trial court granted MEDFI's motion quashing the subpoena and issued an order of sanctions in the amount of $5,600. Cruz appealed the court's orders.
The issue addressed by the appellate court was whether the documents sought by Cruz from MEDFI were discoverable. All parties to the appeal agreed that the subject matter of the underlying action included the amount of economic damages Dodd may recover for his medical treatment at Coast.
Court's Ruling and Its Rationale
The court began its analysis by reviewing the measure of damages for past medical expenses. It restated the holding from Howell that a plaintiff may recover as economic damages no more than the reasonable value of the medical services rendered and is not entitled to recover the reasonable value if his or her actual loss was less. Howell at 555. In other words, "damages for past medical expenses are limited to the lesser of (1) the amount paid or incurred for past medical expenses and (2) the reasonable value of the services." Corenbaum at 1325-1326.
The court reiterated the holding in both Howell and Corenbaum that a healthcare provider's bills to the plaintiff for its medical services are not relevant to the amount of the plaintiff's economic damages for past medical services because it "is not necessarily representative of either the cost of providing those services or their market value." Corenbaum at 1326, quoting Howell at 564.
The court then referred to the Supreme Court's discussion in Howell regarding the difficulty of determining the reasonable value of medical services. In Howell, the court recognized that "there appear to be not one market for medical services but several, the price of services depending on the category of payer and sometimes on the particular government or business entity paying for the services." Howell at 562. Finally, the court specifically referred to the statement in Howell expressly distinguishing its fact pattern from Katiuzhinsky v. Perry (2007) 152 Cal. App. 4th 1288, where the plaintiff remained fully liable to a factor for the amount of the medical provider's charges for care and treatment. The amount paid by a factor for a medical lien may be different than the reasonable value of medical services because, when a healthcare provider sells its lien to a factor, it "transfers the expense of collection and the risk of non-payment onto someone else." Katiuzhinsky at 1298.|
Having considered the above, the Court of Appeal held as follows:
- That the defendant subpoena to MEDFI was reasonably calculated to lead to the discovery of admissible evidence relating to the reasonable value of Coast's services. The court held that the subpoenaed documents, for example, could reveal what Coast believed was the reasonable value of its services, i.e. what amount it sold the lien for apart from its calculation of the expense and risk of collection. "This would be at least some evidence of the reasonable value of Coast's services."
- That the defendant's subpoena to MEDFI was also reasonably calculated to lead to the discovery of admissible evidence relating to the amount of medical expenses Dodd actually incurred. The court held, that although MEDFI and plaintiff contend that plaintiff is responsible for 100% of Coast's billed amount, Cruz disputes that contention. Cruz is entitled to obtain documents relating to MEDFI's collection activity and policies and procedures, because they may support Cruz's position that Dodd is not actually responsible for the full amount billed. In other words, even though MEDFI maintained that the plaintiff was responsible for 100% of Coast's billed amount, if MEDFI's custom and practice was to accept 50% or less of the billed amounts of the accounts receivables it purchases, then this would be relevant evidence regarding the amount of medical expenses Dodd actually incurred.
Discussion and Analysis
The Court of Appeals decision in Dodd provides the legal foundation for defendants to conduct discovery on both the healthcare providers as well as the finance companies they sell their liens to in order to discover the following:
- Whether or not the healthcare provider has sold its lien;
- How much the healthcare provider has sold its lien for; and
- The custom and practice of the finance company that purchased the lien regarding what it ultimately accepts as satisfaction of its liens in PI cases.
Recent case law compels the conclusion that the above information is both relevant and admissible in relation to the twin issues of the amount of medical expenses that plaintiff actually incurred, and the reasonable value of the services provided.
The Plaintiff's Bar continues to distort the "value" of cases by directing their clients to medical providers who will treat on a lien basis and provide unreasonably high billed amounts for their services. The Plaintiff's Bar continues to try and leverage the threat of blackboarding high economic damages at trial to obtain unrealistically high settlements. The decision in Dodd now provides defendants an opportunity to obtain information in discovery that may be used to prevent the blackboarding of high billed amounts for medical treatment provided on a lien. The discovery recommended above should be coordinated with a "failure to mitigate" defense for those plaintiffs who have insurance but whose medical treatment is directed by their attorney and undertaken on a lien basis.