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<xTITLE>Getting What was Actually Paid</xTITLE>

Getting What was Actually Paid

by Phyllis Pollack
August 2011

PGP Mediation Blog by Phyllis G. Pollack

Phyllis  Pollack

Let us suppose that Jane Jones is driving along one of the many freeways in Los Angeles, and as is typical, the flow of traffic suddenly and abruptly comes to a halt. That is, in a nanosecond, Jane goes from 60 mph to 0 mph. While she is alert and stops in time, the driver behind her, Patricia Smith, is not – she is busy texting. Consequently, Ms. Smith’s vehicle plows into the rear of Ms. Jones’ vehicle, causing Ms. Jones to suffer various and multiple soft tissue injuries.

Ms. Jones seeks medical treatment, going first to the emergency room to be checked out and then to the chiropractor to be treated. By the time all is said and done, her medical expense is $15,000, but luckily, Ms. Jones has fantastic medical insurance. Her insurer is able to negotiate both with the ER hospital and her chiropractor for a reduced rate and is able to pay $7,500 in full settlement of all medical expenses.

This being the litigious state of California, Ms. Jones sues Ms. Smith for her injuries and medical expenses. Because of the “collateral source” rule, Ms. Smith cannot obtain an offset or otherwise benefit from the fact that Ms. Jones had fantastic insurance which paid her medical expenses. That is, Ms. Smith can not pay less to Ms. Jones simply because Ms. Jones was prudent enough to have health insurance. Rather, Ms. Jones will be entitled to claim the full amount of her damages from Ms. Smith. (See, Helfend v. Southern Cal. Rapid Transit Dist. (1970) 2 Cal.3d 1,6). But, the question remains: Is Ms. Jones entitled to collect from Ms. Smith the amount of $15,000 actually billed by the ER and her chiropractor – or the amount of $7,500 that was actually paid?

Over the past twenty years, the appellate courts in California have split on the answer; some ruled Ms. Jones would be entitled to the $15,000 while others have held she would be entitled to only what was actually paid – the $7,500.

On August 18, 2011, in Howell v. Hamilton Meats & Provisions, Inc., Case No. S179115, (Howell v Hamilton Meats) the California Supreme Court settled the dispute by holding that in such situations, the plaintiff would be entitled to only the amount actually paid out – or $7,500 in our example:

We hold, therefore, that an injured plaintiff whose medical expenses are paid through private insurance may recover as economic damages no more than the amounts paid by the plaintiff of his or her insurer for the medical services received or still owing at the time of trial. (Id. at p. 28.)

In reaching this conclusion, the court concluded that a defendant – Ms. Smith in our example – is not obtaining a “windfall” “. . .merely because the injured person’s health insurer has negotiated a favorable rate of payment with the person’s medical provider.” (Id. at p. 18). The court reached this conclusion based on a 2005 study of hospital costs (Id. at p. 18) revealing that “[h]ospital charge setting practices are complex and varied.” (Id.) Consequently, the court responded that neither as the full bill that a provider charges represents the “real” value of the services, neither does the “discounted” amount represent an “artificial” or “arbitrary” value. Rather, the court concluded that the discounted amount neither is a “windfall” to the defendant nor acts to encourage the defendant to engage in “risky conduct.” (Id. at p. 22).

Perhaps, the court’s most realistic appraisal appears at the end of its opinion:

There is, to be sure, an element of fortuity to the compensatory damages the defendant pays under the rule we articulate here. A tortfeasor who injures a member of a managed care organization may pay less in compensation for medical expenses than one who inflicts the same injury on an uninsured person treated at a hospital (assuming the hospital does not offer the person a discount for its chargemaster prices). But, as defendant notes, “[f]ortuity is a fact in life and litigation.” (Id. at p. 27).

Or, to quote Forrest Gump, “My momma always said, “Life was like a box of chocolates, you never know what you’re gonna get.” Forrest Gump (1994).

. . .Just something to think about!


Phyllis Pollack with PGP Mediation uses a facilitative, interest-based approach. Her preferred mediation style is facilitative in the belief that the best and most durable resolutions are those achieved by the parties themselves. The parties generally know the business issues and priorities, personalities and obstacles to a successful resolution as well as their own needs better than any mediator or arbitrator. She does not impose her views or make decisions for the parties. Rather, Phyllis assists the parties in creating options that meet the needs and desires of both sides.  When appropriate, visual aids are used in preparing discussions and illustrating possible solutions. On the other hand, she is not averse to being proactive and offering a generous dose of reality, particularly when the process may have stalled due to unrealistic expectations of attorney or client, a failure to focus on needs rather than demands, or when one or more parties need to be reminded of the potential consequences of their failure to reach an agreement.

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