Life is about managing choices. The choice of the right healthcare is no different. It requires a careful balance of economic feasibility and the necessary level of care for one’s well-being.
When a healthy individual purchases a simple HMO plan—to cover annual checkups and the occasional cold—that is a reasonable choice. But when that same individual receives a catastrophic injury by another, a health plan that was once efficient suddenly becomes the primary hindrance to recovery. Rather than directly obtain the skilled care they need, they instead must go through the slow channels frequently found in the average HMO plan.
For the better part of a decade, Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541 enabled insurance companies to chip away at the collateral source rule and minimize injury victim compensation. A person finding themselves in the above situation then had a new choice when seeking compensation against the at-fault party. They could either: (1) stick with their once reasonable insurance plan and receive slow care while hoping to recover, or (2) seek the doctors they need—those specialized in the area of their injury and willing to treat on a lien—and receive the best care to make them whole again. Unfortunately, in choosing the latter, that person then receives the accusation that they are failing to mitigate their damages and have to receive compensation only for the (much lower) insurance or Medicare rates for that treatment. This results in leaving many injury victims significantly undercompensated.
The decision of Pebley v. Santa Clara Organics, LLC (2018) 22 Cal.App.5th 1266 has turned the tide for injury victims and reversed the slow death of the collateral source rule. Its core holding is that those who treat outside of their insurance plan shall be considered “uninsured” for evidentiary purposes. This allows plaintiffs to take control of their recovery without fear of not receiving enough compensation for medical bills that were necessary due to the actions of another.
Upholding the Collateral Source Rule
In Pebley, the Appellate Court was confronted with an insured plaintiff (Mr. Pebley was insured through Kaiser, an HMO plan) who treated with doctors outside his insurance plan (on a lien). The Court upholds that a plaintiff in that position receives consideration of being uninsured for the purpose of determining economic damages. In doing so, the Court’s reasoning stands as the following:
[A] tortfeasor cannot force a plaintiff to use his or her insurance to obtain medical treatment for injuries caused by the tortfeasor. That choice belongs to the plaintiff. If the plaintiff elects to receive treatment through an insurance carrier, the plaintiff’s recovery typically has a limit regarding the amounts the carrier pays for the services. But where, as here, the plaintiff chooses to receive treatment outside the available insurance plan, the plaintiff is in the same position as an uninsured plaintiff and should receive classification as such under the law.
Additionally, the Court concluded:
[T]he trial court did not abuse its discretion by excluding evidence of Pebley’s insured status under Evidence Code section 352. Pebley had the right to treat outside his plan. Evidence of his insurance would have confused the issues or misled and prejudiced the jury.
In sum, Pebley holds: (1) insurance is irrelevant and prejudicial under Evidence Code 352 and should be excluded; (2) mitigation of damages does not apply as to a plaintiff’s decision to treat on a lien rather than insurance, and; (3) insurance rates are irrelevant in determining reasonable value in a case where the plaintiff is uninsured; i.e., they are deemed uninsured. Pebley effectively upholds the collateral source rule and permits injury victims to exercise their substantive due process rights to make medical decisions. Importantly, it stays within the Howell framework, while addressing a frequent situation where a plaintiff treats outside their insurance—a situation within which defendants had in the past improperly utilized Howell’s holding to undercompensate their victims.
Pebley v. Santa Clara Organics, LLC (2018) 22 Cal.App.5th 1266
On May 9, 2011, Mr. Pebley and his wife were returning from a camping trip in their motor home. Mrs. Pebley was driving when the vehicle developed a flat tire. She turned on the hazard lights, pulled over to the right shoulder, and stopped the vehicle. A portion of the motor home remained in the No. 2 lane. In the rearview mirror, Mrs. Pebley saw a Kenworth “big rig” truck bearing down on them from behind. The driver, Mr. Estrada, who was travelling at approximately 50 miles per hour, crashed into the left rear end of the motor home. The truck, with ownership belonging to Santa Clara Organics, was carrying a 40,000-pound load at the time of the collision. Mr. Pebley receives transportation to the hospital by ambulance, treated, and released; suffering injuries to his neck and lower back.
Although Mr. Pebley had health insurance through Kaiser Permanente, he elected to obtain medical services outside his insurance plan. A jury found defendants liable for Mr. Pebley’s injuries and awarded him $3,644,000 in damages, including $269,000 for past medical expenses and $375,000 for future medical expenses. For the most part, Mr. Pebley recovered the amounts for past services and expected to be incurred for future services.
Santa Clara Organics appealed, contending that they should have been allowed to present evidence and argument that 1) Mr. Pebley failed to mitigate his damages by not treating through his insurance with Kaiser, and 2) Mr. Pebley’s medical bills should be reduced by insurance and/or Medicare rates.
The Rocky Road to Pebley
In 2011, the Appellate Court decided Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541. Howell put an end to the “golden years” of plaintiff personal injury practice by limiting the amount a plaintiff is able to to recover when their insurance company pays for their treatment. Before Howell, if a plaintiff would receive damages for the full amount of a medical bill, which was thereafter paid by insurance, the plaintiff would, by definition, receive a windfall. The purpose behind Howell was to preclude a windfall to plaintiffs while also maintaining the collateral source rule.
Howell simply holds that, should a plaintiff’s medical treatment be paid by insurance, the plaintiff is limited to that amount as damages. The holding thus created a 2-prong test for determining past medical expenses: Limiting plaintiffs to the lesser of 1) what insurance paid (without mentioning insurance), or 2) the reasonable and customary cost of medical services.
After the decision, insurance companies insisted that Howell all but abolished the collateral source rule. To that end, insurance attorneys routinely would attempt to get the plaintiff’s medical insurance into evidence, arguing that treating on a lien was a failure to mitigate, insurance rates were all injury victims get permission to recover, and treating outside of insurance is some sort of fraudulent scheme to increase damages. Ironically, these same attorneys would try to exclude their insured’s liability insurance in the same breath.
Determining the Reasonable and Customary Cost of Medical Care
After Howell came a litany of other cases which have assisted lower courts and triers of fact in determining reasonable value.1 Most recently, the focus has shifted away from the cynical view that plaintiffs are receiving a windfall when being compensated for their injuries. Recent appellate rulings instead reflect an understanding that, by limiting medical expenses to insurance or reimbursement rates, the injury victim receives undercompensation, and the tortfeasor is the one receiving a windfall.2
Such was the case in Pebley. At trial, David Pebley testified he had reviewed every bill regarding his medical treatment. He states unequivocally that he understands the total amount of his bills to be what he—and he alone—owes. Mr. Pebley testified he was never notified he could negotiate his bills, and he signed a contract (the lien) saying he owed the full amount. In sum, Mr. Pebley testified he was fully responsible for the bills regardless of the outcome of the case.
Let’s contrast Pebley with the goal in tort: to put the plaintiff back into the position he or she was in prior to the incident. If the Pebley jury would have only awarded the insurance or reimbursement rates, then Mr. Pebley would have had outstanding damages reflected by the remainder of his medical bills. Assuming his medical providers would not accept the insurance reimbursement rates as payment in full–which they testified unequivocally they would not in deposition–Mr. Pebley would have necessarily been undercompensated, while the defendants would have received a windfall.
The same would apply moving into the future. At any moment one can become unemployed, lose insurance coverage, or need to see a specialist who does not accept their insurance. If that occurs, an injury victim would have a difficult time obtaining any semblance of coverage given serious pre-existing conditions. Moreover, the reduced damages they received—based on an irrelevant insurance rate—would not cover the costs for these future treatments. Consequently, this would be contrary to the goal in tort law and further violate the collateral source rule.3
Proving Pebley Medical Damages
I have tried many cases since Pebley. In each of these cases, I’ve presented the plaintiff’s past and future medical expenses in a variety of different ways. It has been interesting seeing how judges rule on these issues. Some agree with and follow Pebley, some disagree but still follow it, and some even disagree with the ruling and refuse to follow it. In trying these cases, I’ve come up with a few do’s and don’ts in proving up medical damages.
First off, remember you must prove your plaintiff (1) sustained medical damages in the form of bills, and; (2) that the bills are reasonable and customary in the community. To that end, make sure you have retained an expert who will be commenting on the bills. As His Honor at my most recent trial made clear, seeing the bills is a pre-requisite to said expert giving an opinion on reasonable value. This makes sense, as the bills indicate specific treatments defined by CPT codes. Depending on your judge, make sure you plan for an objection that the CPT codes are case-specific hearsay under Sanchez; either enter a stipulation with the defense or have custodians of record and treaters subpoenaed and on the witness list.
Alternatively, under Ochoa, your non-retained treating physicians can give opinions on reasonable value so long as the care is within the purview of their treatment. Make sure you establish facts in their depositions to support your motions in limine. I like to use treaters to testify they (1) are treating on a lien; (2) expecting payment in full regardless of the outcome of the case; (3) do not routinely discount liens but in some circumstances make exceptions; (4) Medicare does not pay them reasonable value for their treatment, and; (5) if they only accepted insurance/Medicare, they would not be able to keep their doors open.
Further, your plaintiff should testify he or she knows the full amount of their bills and owes them regardless of the outcome of the case. Other deposition prep topics should include why your plaintiff treated on a lien versus their insurance. This should protect your record on appeal.
Defense Tactics After Pebley
The Pebley decision has shaken the insurance industry and their aims in trying to cap limits on damages. Since the decision, insurance defense firms have modified their tactics to either overturn Pebley or create an exception to the rules outlined above. Here are some of the arguments I’ve heard:
- “While the plaintiff treated on a lien, their medical providers would have accepted their insurance – therefore, treating on a lien was done solely to inflate the medical bills”;
- To counter this argument, be ready to tell the Court why your injury victim treated on a lien.4
- Further, defense use of insurance reimbursement rates or Medicare numbers is a veiled mitigation of damages argument, NOT an argument on reasonable value. The reasonable value calculation must be made in terms of an uninsured patient and insurance/Medicare are obviously inadmissible.
- “Stokes v. Muschinske (2019) 34 Cal.App.5th 45 permits defendants to use Medicare reimbursement rates as evidence of reasonable value”;
- To counter this argument, know the case cold because it does not hold Medicare receives permission to be reasonable value. It is a very limited holding; essentially, the plaintiff on appeal could not prove the prejudicial effect of the introduction of Medicare rates and a brief mention of Kaiser facilities (which implicates insurance was available to the plaintiff). Stokes does not expand or reduce the holdings in Howell, Pebley, and their progeny. In fact, defendants’ common misreading of Stokes directly conflicts with Pebley.5 In addition to precluding evidence of Mr. Pebley’s Kaiser insurance, the trial court in Pebley also specifically precluded mention of Medicare, even though Mr. Pebley was eligible for Medicare.
- Further, ask all your non-retained treating physicians if what Medicare pays them is reasonable for their services – even defense doctors agree it is not.
- If the Court permits Medicare rates, it is easy to cross-examine a defense billing expert and make them look foolish. It’s almost a gift in your case and allows for you to polarize the defense position.
- “Pebley conflicts with Howell and subsequent cases”;
- Know the line of cases cold to explain why it fits in and is just a development of the law. Pebley does not contradict Howell; instead, it fills in a hole that Howell did not address, while also acknowledging and agreeing with the Howell framework.
- The proof of this is that the Supreme Court denied the defense petition for review on the same grounds.6
- Defense asks discovery questions specific to liens, which doctors accept plaintiff’s insurance, and whether plaintiff asked his or her doctors to treat through insurance;
- Counter this by making sure your plaintiff knows the reasons they are treating on liens, as discussed in Pebley;
- See if plaintiff’s insurance will actually pay for plaintiff’s treatment if there is a third-party case. Many insurance companies will not. Furthermore, having evidence of that for motions in limine would put the issue to bed;
- Have your plaintiff present their insurance card to every doctor so they can testify why they had to treat on a lien. The doctor may not accept. Alterntively, it would have taken too long to get “approved” for treatment. It is also possible the insurance company would not cover.
Moving Forward and Protecting Pebley
Pebley was a momentous decision. This came at a time when the defense industry was significantly undercutting their victims’ compensation and recovery. It is thoughtfully reasoned and covers many important issues that had previously gone unaddressed by the Appellate Courts. It is another case within the progeny of Howell, and follows its framework. However, it is significant for its clear intent of reducing unfair undercompensation for injury victims.
Medical liens are a vital component in a plaintiff’s long road to recovery. They often are the only means by which a plaintiff can get the complicated, costly treatment they need after a serious injury. With Pebley, these important liens cannot be unfairly reduced by defendants seeking a windfall. Therefore, it is imperative that the plaintiffs’ bar not take advantage of Pebley by presenting inflated and/or unnecessary liens. This means a lien for services that are covered by an insurance plan which that doctor accepts. Instead, their client should seek the treatment they need and use liens if necessary. This is so that their attorney may utilize Pebley to try a clean case with a sensible presentation.
Additional Notes
1 Corenbaum v. Lampkin (2013) 215 Cal.App.4th 1308 (holding the full medical bill is not relevant in determining reasonable value or non-economic damages); Uspenskaya v. Meline (2015) 241 Cal.App.4th 996 (finding a third-party purchase price of a medical lien cannot be used as reasonable value for the injury victim’s medical expenses); Ochoa v. Dorado (2014) 228 Cal.App.4th 12 (permitting non-retained treating physicians to discuss reasonable value, fact, and opinion testimony)
2 Bermudez v. Ciolek (2015) 237 Cal.App.4th 1311 (holding medical bills are evidence of reasonable value for uninsured plaintiffs, provided they are backed by expert testimony)
3 “It would be inequitable to classify Pebley as insured when Pebley, and not an insurance carrier, is responsible for the bills. Indeed, precluding Pebley from recovering the reasonable value of the services for which he is liable would result in both undercompensation for Pebley and a windfall for defendants. Pebley at 1278.
4 Pebley lays out reasons Plaintiffs treat on a lien: Plaintiffs generally make their health insurance choices before they are injured. These choices may be based on the plaintiffs’ willingness to bear the risk posed by a health maintenance organization (HMO) rationing system. This is because the plaintiff is healthy and requires little care. This decision may appear much different after a serious accident, when the plaintiff suddenly needs complex, extensive care that an HMO has no structure for providing. The plaintiff also may wish to choose a physician or surgeon who specializes in treating the specific type of injury involved. However, they may not not accept the plaintiff’s insurance or any other type of insurance. In addition, health care providers that bill through insurance, rather than on a lien basis, may be less willing to participate in the litigation process.” Pebley at 1278.
5 Footnote 1 in the Pebley decision states: “Defendants claim Pebley became Medicare eligible in 2013, but Medicare was not billed for the surgery.” Accordingly, pursuant to Pebley, Medicare is irrelevant unless it was actually billed and must be reduced per Howell. This falls in line with Howell and Pebley. If Medicare pays for services, the plaintiff is only entitled to that payment as damages to protect against a windfall to plaintiff. If Medicare did NOT pay for services, the defendant is not entitled to make this argument to protect against a windfall to defendant and under-compensation for plaintiff.
6 Appellants’ petition for review by the Supreme Court was denied August 8, 2018, S249399.
