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August 2011

Howell v. Hamilton Meats & Provisions, Inc. ? Economic Damages For Medical Care Limited To Amounts Actually Paid Regardless Of Discounts Applied By Medical Care Providers

Collateral Source Rule Not Violated Where Plaintiff Did Not Incur Liability For Her Medical Providers' Full Bills

(August 18, 2011) ___ Cal.4th ___, 11 C.D.O.S. ______

The California Supreme Court held an injured plaintiff can recover only the amounts billed by her health care provider, even if discounted from the value of the actual services provided.  The Supreme Court held such discounts do not violate the collateral source rule or provide improper windfalls to tortfeasors.

Plaintiff, Rebecca Howell ("Howell"), sued defendant, Hamilton Meats & Provisions, Inc. ("Hamilton Meats"), for injuries suffered in an automobile accident.  Hamilton Meats conceded liability at trial and the necessity of Howell's medical treatment, but contested the amount of economic damages Howell sought for that accident.  Hamilton Meats moved in limine to exclude evidence of medical bills that neither Howell nor her health insurer had paid.

Payment records showed significant amounts of Howell's medical bills had been adjusted downward before her health insurer paid the balance, pursuant to negotiated rate differential agreements.  Hamilton Meats argued only the amounts actually paid by Howell and her insurer could be recovered.  The trial court denied Hamilton Meats's motion.  The jury returned a verdict awarding Howell the total amount billed, before discount, for her medical care. 

Hamilton Meats filed a post-trial motion to reduce Howell's award to the amount actually paid.  Howell argued a reduction would violate the collateral source rule, which precludes deduction of compensation Howell received from sources independent of the tortfeasor.

The trial court granted Hamilton Meats's motion, reducing Howell's past medical damages award to reflect the amounts actually paid.  The court of appeal reversed the trial court's reduction, agreeing with Howell that any reduction violated the collateral source rule.

The California Supreme Court granted Hamilton Meats's petition for review.  The Supreme Court noted that a person who undergoes necessary medical treatment for tortiously caused injuries suffers an economic loss by taking on liability for the costs of treatment.  Thus, any charges the injured person owes a medical provider are recoverable as economic damages.  When the costs of medical treatment are paid in whole or part by a third party unconnected to the defendant, the collateral source rule applies.  If an injured party receives compensation for his injuries from an independent source, the payment is not deducted (with limited exceptions) from the damages the plaintiff would otherwise collect from the tortfeasor.  But, the Supreme Court held, a plaintiff may not seek damages beyond what medical payments are actually made, agreeing with Hanif v. Housing Authority (1988) 200 Cal.App.3d 635. 

In Hanif, the injured plaintiff, a Medi-Cal recipient, presented evidence the amounts Medi-Cal paid for his medical care were substantially lower than the "reasonable value" of the treatment he received, and sought damages for the "reasonable value."  The trial court awarded the plaintiff the larger, "reasonable value" amount.  The appellate court reversed, holding plaintiff's recovery should be limited to the amount Medi-Cal actually paid because the detriment plaintiff suffered was only what was paid on his behalf.  To award more, according to the appellate court, would have placed the plaintiff in a better financial position than before the tort was committed.

As the Supreme Court noted, Hanif and later cases did not address  whether restricting recovery to amounts actually paid by a plaintiff or on his behalf contravened the collateral source rule.  To answer this, the Court considered four questions:  (1) Was Hanif's rule correct?; (2)  Does Hanif's logic extend to plaintiffs covered by private insurance?; (3)  Does limiting plaintiff's recovery to the amounts paid and owed on her behalf confer a windfall on the tortfeasor?; and (4)  Is the difference between the provider's full billings and the negotiated rate differential subject to the collateral source rule?

The Supreme Court answered affirmatively to the first question, noting Hanif's rule was supported by California statutes and the Restatement.  It also held Hanif extended to private health insurance because, even though the medical provider agreed to accept discounted payments from the health insurer as full payment, it was done in advance of any need for these services and due to commercial considerations.  The Supreme Court found no windfall to the defendant.  Because prices for a given medical service vary widely, it is difficult to say the provider's full bills represent the real value of their services. 

The Supreme Court held the collateral source rule inapplicable because Howell did not incur liability for her providers' full bills.  The negotiated rate differential was not provided as compensation for Howell's injuries.  Insurers and medical providers negotiate the rates for their own business interests.  However, the Supreme Court held the collateral source rule does apply to the extent Howell is entitled to recover the amounts paid on her behalf by her health insurer and her own out-of-pocket expenses.  Howell could just not recover beyond that sum.

Finally, the Supreme Court held that, where a jury has awarded more for past medical expenses than was actually paid to the medical provider, the defendant may move for a new trial on grounds of excessive damages.  A "Hanif motion" (as was done in this case) is no longer necessary.  If the trial court grants the new trial motion, it may permit the plaintiff to choose between accepting reduced damages or undertaking a new trial.

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This opinion is not final.  It may be modified on rehearing or review may be granted by the United States Supreme Court.  These events would render the opinion unavailable for use as legal authority.

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