BILL ANALYSIS �
SB 1528
Page 1
Date of Hearing: August 28, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
SB 1528 (Steinberg) - As Amended: August 24, 2012
As Proposed to be Amended
SENATE VOTE : 22-13
SUBJECT : DAMAGES: MEDICAL SERVICES
KEY ISSUES :
1)Should a plaintiff in a tort action be entitled to recover the
reasonable and necessary value of medical services where those
services were provided through a capitated health plan?
2)Should a county's existing medical lien right to recover part
of a plaintiff's tort judgment be extended to permit recovery
from a settlement, compromise, mediation, or arbitration
award?
3)should the factors which a county shall consider in
determining whether to waive a medical lien claim be codified?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This bill - a version of which the Committee heard earlier this
year - addresses ambiguities in existing law relating to (1) the
ability of an injured tort plaintiff to prove and recover the
cost of medical expenses and (2) the ability of a county or the
state to recover the cost of medical services it provided to the
plaintiff from any recovery the plaintiff may subsequently
obtain. The bill is partly a response to the California Supreme
Court's decision in Howell v. Hamilton Meats (2011), which held
that a plaintiff was only entitled to recover the PPO-
discounted charges that were actually incurred as opposed to the
higher "market rate" that the health care provider could have
charged in the absence of the discount. As explained below,
while the Howell rule works well enough for fee-for-service
plans, it raises questions about the proper level of damages
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where the plaintiff received medical services through a
capitated health plan. This bill provides that where a
plaintiff relied upon a capitated plan, the damages will be
based on the "reasonable and necessary value of the medical
services." On the matter of county medical liens, this bill
makes the following changes: first, while existing law permits a
county to recover medical expenses provided from a tort
plaintiff's judgment, this bill would extend that right to
settlements; second, the bill specifies, consistent with the
common fund rule, that a county's lien is subject to any liens
for attorney's fees and costs; third, the bill sets forth
"factors" that a county shall consider in determining whether to
waive a lien claim. In addition, under existing law, where a
tort plaintiff's medical expenses are paid by Medi-Cal, the
director of the Department of Health Care Services has a lien
against that portion of a plaintiff's recovery that is based on
medical expenses. This bill provides that, in order to better
secure the director's right and comply with recent case law, the
plaintiff who is a Medi-Cal beneficiary shall be entitled to
recover from the tortfeasor the reasonable and necessary value
of the medical services. The bill is sponsored by the Consumer
Attorneys of California. An earlier version of this bill was
opposed by several insurance and business groups, as well as by
the Civil Justice Association of California, apparently on the
grounds that the bill was attempting to overturn the Howell
decision, which these groups support. It is not clear if the
current version of this bill removes their opposition. The
author wishes to take an amendment in this Committee adding
intent language, which is reflected in the analysis. The
analysis also recommends an additional substantive amendment to
better serve the measure's stated intent.
SUMMARY : Amends various compensation, lien and subrogation
rights. Specifically, this bill :
1)Provides that an injured person whose health care is provided
through a public or private capitated health care service plan
shall be entitled to recover as damages the reasonable and
necessary value of medical services.
2)Extends a county's existing lien rights against any judgment
recovered by an injured tort victim, where the county has
furnished medical services to the tort victim, to any amount
that the tort victim recovered in a settlement, compromise,
arbitration award, mediation settlement, or other recovery for
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past medical services. Specifies that consistent with the
common fund doctrine, the lien shall be subject to any liens
for attorney's fees and costs incurred by the injured person
or the person's representative, estate, or survivors.
3)Requires the following factors to be considered when a county
is requested to compromise or waive any claim based on medical
services to a person injured in tort:
a) The total value of the damages suffered by the injured
persons in comparison to the amount actually recovered by
way of judgment, settlement, compromise, arbitration award,
or mediation settlement.
b) Other liens being asserted against the recovery that
would reduce the final recovery to the injured person,
whether or not other lienholders have agreed to compromise
or waive their liens.
c) Whether or not the claim would exceed 50% of the moneys
ultimately recovered by the person.
d) Any other factors that would be just, fair, and
equitable.
4)Provides that a person injured in tort who receives medical
services under a Medi-Cal plan shall be entitled to recover
from the person or party responsible the reasonable and
necessary value of medical services.
5)States the intent of this bill is limited to resolving an
issue not addressed in Howell v. Hamilton Meats (2011) 52
Cal.4th 541 or Hanif v. Housing Authority of Yolo County
(1988) 200 Cal.App.3d 635 concerning how to establish the
value of damages for medical services provided through a
capitated healthcare service plan and to maximize the recovery
of liens by the Department of Health Care Services.
EXISTING LAW :
1)Provides that every person who suffers a loss or harm from the
unlawful act or omission of another may recover from the
person at fault monetary compensation, which is called
damages. Specifies that damages may be awarded, in a judicial
proceeding, for loss or harm resulting after the commencement
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of the judicial proceeding, or certain to result in the
future. (Civil Code Sections 3281 and 3283.)
2)Provides that, for the breach of an obligation not arising
from contract, the measure of damages, except where otherwise
expressly provided, is the amount which will compensate for
all the detriment proximately caused thereby, whether it could
have been anticipated or not. (Civil Code Section 3333.)
3)Pursuant to the collateral source rule, provides that evidence
of a plaintiff's collateral source of payment for medical
services, such as payment provided by an insurer, should not
be introduced to reduce the amount of compensatory damages to
be awarded to the plaintiff. (Helfend v. Southern Cal. Rapid
Transit Dist. (1970) 2 Cal.3d 1, 6.)
4)Permits a health insurer to assert a lien against an injured
person's recovery from a third party that is liable for the
injuries, but limits the proportion of the recovery that may
be subject to the lien. (Civil Code Section 3040.)
5)Establishes a procedure for a hospital to place a lien upon
the damages recovered or to be recovered by an injured person
from a third party liable for the injury. (Civil Code Section
3045 et seq.)
6)Provides that where a county is required by law to furnish
medical services to a person who is injured under
circumstances creating tort liability in a third person, the
county shall have a right to recover from the third person the
reasonable value of medical care furnished, or shall, as to
this right, be subrogated to any right or claim that the
injured person has against that third person to the extent of
the reasonable value of the medical care furnished. Specifies
the manner by which the county may enforce this right and
provides that, in the event that the injured party brings an
action against the liable third person, the county's right of
action shall abate during the pendency of that action and
continue as a first lien against any judgment recovered by the
injured person. (Government Code Section 23004.1.)
7)Provides, pursuant to the rights described above, that the
county may (1) compromise, or settle and execute a release of,
any claim which the county has; (2) waive any such claim, in
whole or in part, for the convenience of the county, or if the
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governing body of the county determines that collection would
result in undue hardship upon the injured person. (Government
Code Section 23004.2.)
COMMENTS : According to earlier intent language, this bill
initially sought "to establish a framework for compensating
persons with injuries due to the fault of third parties." The
present bill seeks more narrowly to address certain ambiguities
in existing law relating to (1) the ability of an injured tort
plaintiff to prove and recover the cost of medical expenses and
(2) the ability of the counties and the state to recover the
cost of medical services that were expended on the plaintiff's
behalf from any amount that the plaintiff recovers from the
tortfeasor.
This bill is related to, but not inconsistent with, the
California Supreme Court's decision in Howell v. Hamilton Meats
(2011) 52 Cal 4th 541, which held that a plaintiff was only
entitled to recover the PPO- discounted charges that were
actually incurred as opposed to the higher listed rate that the
health care provider could have charged in the absence of the
discount. In short, the plaintiff may only recover a reasonable
amount actually incurred; the plaintiff is not entitled to a
market rate, even if reasonable, if the amount actually incurred
was less than that market rate.
The Narrowed 3-Part Scope of this Measure : While the so-called
Howell rule directly addresses the damages questions arising in
fee-for-service health plans, it raises questions about the
proper level of damages where the plaintiff received medical
services through a capitated health plan, where typically no
bill is presented for specific services provided. This bill
provides that where a plaintiff received medical services
through capitated plan, the damages will be based on the
"reasonable and necessary value" of those services.
Second, on the matter of county liens for medical expenses
provided, this bill makes the following changes: (1) while
existing law permits a county to recover medical expenses
provided from a tort plaintiff's judgment, this bill would
extend that right to settlements as well; (2) the bill specifies
that the county's lien is subject to the common fund rule, and
thus subject to any liens for attorney's fees and costs; and (3)
the bill sets forth "factors" that counties shall consider in
determining whether to waive a lien claim.
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Finally, under existing law, where a tort plaintiff's medical
expenses are paid by Medi-Cal, the director of the Department of
Health Care Services has a lien against that portion of a
plaintiff's recovery that is based on medical expenses. This
bill provides that, in order to better secure the director's
right and comply with case law that limits a state's recovery to
the portion of the award reflecting medical expenses, the
plaintiff-beneficiary shall be entitled to recover from the
tortfeasor the reasonable and necessary value of the medical
services. The analysis now turns to a consideration of each of
these provisions.
Howell, the Collateral Source Rule, and the Problem of Capitated
Health Plans : Under existing law, a person who suffers injuries
caused by a third party may bring an action against the third
party for recovery of damages, including medical costs. The
plaintiff is entitled to recover medical expenses even if those
expenses are paid by the plaintiff's insurance. This is
because, under the collateral source rule, evidence of the
plaintiff's medical insurance is inadmissible when used to
reduce the amount of compensatory damages. The collateral
source rule reflects the public policy that the tortfeasor
should not be allowed to escape liability for the plaintiff's
injuries just because someone other than the plaintiff paid the
medical bills. Many health insurance policies contain
reimbursement clauses that effectively give the insurer a lien
against the injured person's recovery for any amount paid by the
insurer. By statute, California imposes certain limits on the
amount of the health insurer's lien. Specifically, a
fee-for-service insurer is entitled to recover "the amount
actually paid" to the medical provider, while capitated plans
are limited to "80% of the usual and customary charge" for the
same services in the same geographical area when provided on a
non-capitated basis.
In Howell, the plaintiff received medical services for her
injuries through the preferred-provider organization, or PPO.
Unlike a capitated HMO, a PPO insurance plan pays providers on a
fee-for-service but at a discounted rate. The insurer and
patient benefit from the discounted rate; the provider benefits
by getting more business in the form of PPO subscribers. In
Howell, the question before the court was whether the injured
plaintiff was entitled to recover the greater "reasonable value"
of the medical services provided, or the lesser discounted rate
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that the plaintiff and the insurer actually incurred and the
provider accepted as payment in full. The plaintiff attempted
to prove the measure of damages by submitting as evidence bills
that neither she nor her insurer had actually paid, since the
bills had been adjusted downward before payment in accordance
with the provider's existing agreement with the PPO insurer.
Although the jury awarded the plaintiff the total amount billed,
the trial court reduced the award to the actual amount incurred,
paid, and accepted.
An appeals court reversed the reduction on the grounds that it
violated the collateral source rule; that is, evidence had been
introduced to reduce the award based on the amount that the
insurance company had paid. However, the California Supreme
Court reversed, holding that the plaintiff was only entitled to
the medical expenses actually incurred, not the theoretical
market rate that would have been charged in the absence of the
PPO agreement. First, the Court held that the collateral source
rule was irrelevant to the question before the Court. The
collateral source rule, after all, says that the defendant
cannot introduce evidence that someone else has paid the medical
expenses that the plaintiff had incurred. In Howell, however,
the question was not whether someone else had paid the expenses
that the plaintiff had incurred, but whether the proper measure
of damages was the amount actually incurred - the discounted
rate - or the hospital's usual billing rates. The Court ruled
that the plaintiff was only entitled to the amount actually
incurred. The Court reasoned that while California courts have
held that a plaintiff is entitled to a "reasonable value" of the
medical care when measuring damages for medical expenses, this
term has always been used by the courts as one of "limitation,
not aggrandizement." If the plaintiff incurred expenses that
were less than the "reasonable" amount - e.g. the customary
"market rate" - it did not mean that the plaintiff could recover
more medical expenses than she actually incurred. In short,
under Howell, the amount must be both reasonable and actually
incurred in order to be recoverable. The Court concluded,
therefore, "that a personal injury plaintiff may recover the
lesser of (a) the amount paid or incurred for medical services,
and (b) the reasonable value of the services." (Howell at 556,
emphasis is original.)
The majority supported its holding, in part, by citing other
cases that appeared to establish analogous rules that recovery
is limited to amounts actually charged or incurred rather than
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market rates that were not charged, no matter how reasonable.
For example, in Parnell v. Adventist Health (2005), the
California Supreme Court held that a hospital could not assert a
lien against a patient's tort recovery for its full bill when it
had in fact accepted the insurer's discounted rate as payment in
full. (Cited in Howell at 554). In Nishihama v. City and
County of San Francisco (2001), the California Court of Appeal
similarly held that a hospital could not recover from a
plaintiff's recovery the difference between its "normal" rate
and the amount it accepted from the plaintiff's insurer. (Cited
in Howell at 553-554.) In Hanif v. Housing Authority (1988), a
California appellate court held that a tort plaintiff whose
medical bills were paid by Medi-Cal was only entitled to the
lower rate that Medi-Cal actually paid for the services rather
than any "reasonable value" that the plaintiff would have been
charged if he was not a Medi-Cal patient. (Cited in Howell at
553.) Although none of these cases involved a PPO, and two
involved liens rather than a plaintiff's recovery, they all
suggested that the proper measure of damages was the amount
actually incurred as opposed to a market rate, reasonable or
otherwise.
What Howell Left Unanswered : According to the author and
sponsor, the Howell decision left unanswered how to measure
damages where medical expenses were covered by a capitated
health plan, whether the patient subscribes to a private HMO or
is a Medi-Cal patient enrolled in a managed care plan. In
Howell, as in the analogous cases it cited in support of its
reasoning, the question was whether a plaintiff's recovery, or
any lien against that recovery, would be measured according to a
discounted amount that was actually billed and paid, or a
"reasonable" market rate that could have been paid in the
absence of any discount. But the pure capitated plan creates a
problem, for in that case the provider does not bill anyone,
whether at a discounted rate or a market rate. In fact, under a
capitated plan the provider is not paid per service but is paid
a periodic fee based on the number of plan members that use that
provider. However, the fact that no bill is issued does not
mean that no cost has been incurred. The subscriber incurs
premiums and gives up some choice of provider in exchange for
not being billed for each service. The insurer incurs the cost
of the period payments that it makes to the provider in lieu of
making payments on a fee-for service basis. There is still a
cost for treating the plaintiff's injuries, even if not
independently billed. That cost is simply dispersed (and
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hidden) in the periodic payments made by the insurer and the
premiums and the choice given up by the insured. As noted
above, Howell provides no guidance on how to calculate these
costs. Not only would it be inaccurate to state that no cost
has been incurred simply because no bill has been presented for
a particular service, but to hold that no cost had been incurred
(and hence no damages) would run contrary to the fundamental
policy objective that is expressed in the collateral source
rule: a tortfeasor would receive a windfall just because the
medical expenses are not set forth in a formal bill.
County Lien Rights: This bill currently extends the current
medical lien rights of counties to settlements, compromises, and
mediation or arbitration awards. Current law only gives the
county a lien on a judgment, but not recoveries obtained through
settlement. Giving lien rights only where there is judgment,
the sponsors contend, limits the ability of counties to be
reimbursed when they provide care to injured persons. This is
because courts have strictly interpreted the county lien statute
(Gov. Code Sec. 23004.1) and have not authorized a county lien
on a settlement, only on judgments. (Mares v Baughman (2001) 92
Cal. App. 4th 672, 676-679; Newton v Clemons (2003) 110 Cal.
App. 4th 1, 8-9.) Because most tort cases settle and never
reach a judgment, counties thus give up considerable sums of
money in potential lien rights. This bill seeks to allow
counties to recover in these common situations. In addition, the
bill, consistent with the common fund rule, would make county
liens subject to attorneys' liens, which currently have priority
over all medical liens under existing law. Lastly, the county
lien provisions set forth specific factors that a county should
consider when determining whether or not to waive a claim to
recover its expenses from any recovery that a plaintiff manages
to obtain. These factors seek fairness consistent with each
situation, so that in exercising its lien right a county does
not inequitably deplete the plaintiff's recovery. While a
county is required to consider these factors, the bill appears
to leave the ultimate decision to waive or not at the discretion
of the county - so long as these factors are at least
considered.
Ahlborn and the State's Right to Recover Costs of Medi-Cal
Services Provided : Finally, this bill makes what is essentially
a clarifying amendment to an existing statute that gives the
state - in the form of the director of the Department of Care
Health Services - a lien against tort plaintiffs whose medical
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expense were paid by Medi-Cal and who subsequently win judgments
or settlements to recover those expenses. This bill would
specify that in order for the director to recover the reasonable
value of any benefits that Medi-Cal provided, that the Medi-Cal
beneficiary is entitled to recover the reasonable and necessary
value of medical services needed to treat his or her injuries.
(This provision is arguably duplicative of, and consistent with,
the Civil Code Section that this bill would add, though it
removes any uncertainty that the Civil Code provision would
apply to Medi-Cal beneficiaries enrolled in managed care plans.)
Finally, the bill specifies that any recovery by the director
must be consistent with Arkansas DHHS v. Ahlborn (2006) 547 U.S.
268, a decision in which the U.S. Supreme Court held that,
pursuant to federal Medicaid law, a state agency cannot assert a
lien that exceeds the medical damages portion of a Medicaid
plaintiff's recovery in tort, for to do so would allow the state
to deplete compensation for the plaintiff's other injuries, such
as pain and suffering or loss of wages.
PROPOSED AUTHOR AMENDMENTS : In order to clarify the limited
intent of this bill, the author wishes to add legislative intent
language that will read as follows:
The intent of this measure is limited to resolving an issue
not addressed in Howell v. Hamilton Meats (2011) 52 Cal.4th
541 or Hanif v. Housing Authority of Yolo County (1988) 200
Cal.App.3d 635 concerning how to establish the value of
damages for medical services provided through a capitated
healthcare service plan and to maximize the recovery of
liens by the Department of Health Care Services.
PROPOSED COMMITTEE AMENDMENT : Given the narrow intent of the
bill as expressed above, the Committee may wish to discuss
with the author his openness to the following recommended
additional amendment. If the purpose of the bill is not to
overturn Howell but simply to permit a plaintiff to prove and
recover as damages the reasonable and necessary value of
medical services where no bill is presented to either the
insurer or the plaintiff, then this could appear to be more
clearly stated in the substantive portion of the bill.
Therefore, the Committee may wish to discuss with the author
his receptivity to the following recommended amendment, in
addition to the author's own proposed amendment:
- On page 3 line 9-12 of the bill in print, amend
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proposed Civil Code Section 3284 as follows:
3284. An injured person whose health care is provided through a
public or private capitated health care service plan, where the
health care provider does not present the injured person with a
bill for payment identifying the costs of the particular
services rendered, shall be entitled to recover as damages the
reasonable and necessary value of medical services.
ARGUMENTS IN SUPPORT : The sponsor of the bill, Consumer
Attorneys of California (CAOC), argues that this bill will
correct certain ambiguities in medical lien law and other
questions left "unanswered" by the Howell decision. On the
issue of county medical liens, CAOC claims that this bill will
allow counties to assert liens on settlements as well as
judgments, thus increasing the universe of cases from which
Counties can recover. While a county would retain the ability
to refuse to reduce or waive a lien, COAC believes that this
bill usefully includes some equitable factors that a county
shall consider when presented with a request to reduce its lien.
As to the Howell decision, CAOC claims that it is unclear from
the decision how an injured person whose care was provided by a
capitated managed care program or a health maintenance
organization proves damages. CAOC argues that this bill
"reaffirms that under this narrow situation, which the Howell
decision did not address, the measure of damages is the
reasonable and necessary value of medical care." According to
CAOC, this is consistent with the long-settled rule that
"wrongdoers should not reap the benefit of a victim's foresight
to purchase insurance." "In sum," CAOC writes, "SB 1528
clarifies an ambiguity in the law that without remedy will wreak
havoc on our system of compensating injured people. SB1528 is
about providing fairness for injured victims and accountability
for those who cause injury... "
ARGUMENTS IN OPPOSITION (To prior versions of the measure) : The
Committee received a number of letters of opposition when this
bill was heard earlier this year. It is not clear how the most
recent amendments, including the amendments that the author may
take in this Committee, will address opposition concerns. When
the bill was first heard, opponents' primary concerns seemed to
be based on a fear that the intent of the bill was to overturn
the Howell decision. For example, the Association of California
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Insurance Companies (ACIC) wrote that that it supported the
Howell decision and would "fundamentally oppose any efforts to
alter that decision."
REGISTERED SUPPORT / OPPOSITION :
Support
Consumer Attorneys of California
County of Los Angeles
County of San Diego
Opposition (To the June 27 version of the bill)
American Insurance Association
American International Group
Asian and Pacific Islanders California Action Network
Association of California Health Care Districts
Association of California Insurance Companies
California Academy of Family Physicians
California Apartment Association
California Asian Chamber of Commerce
California Assisted Living Association
California Association of Bed and Breakfast Inns
California Association of Health Facilities
California Association of Health Plans
California Association of Joint Powers Authorities
California Chamber of Commerce
California Defense Counsel
California Hotel & Lodging Association
California Manufacturers & Technology Association
California Primary Care Association
Californians Allied for Patient Protection
Chinese Chamber of Commerce of Los Angeles
Civil Justice Association of California
Cooperative of American Physicians
CSAC Excess Insurance Authority
National Association of Mutual Insurance Companies
Pacific Association of Domestic Insurance Companies
The Doctors Company
Analysis Prepared by : Thomas Clark/ JUD. / (916) 319-2334
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