California Supreme Court to review Howell v. Hamilton Meats
Friday, March 12, 2010
(Click here for a report on the California Supreme Court’s decision issued Aug. 18, 2011.)
Remember the collateral source rule from law school? Its ranking on the law student scale of understanding is somewhere between the rule against perpetuities and the rule of thumb.
Although only vaguely familiar to many lawyers, the collateral source rule is critical to people injured by the wrongful conduct of manufacturers, Big Tobacco, employers and bad drivers, among others. What the collateral source rule says is that if the plaintiff had the foresight to buy medical insurance, the defendant who injures the plaintiff cannot get the benefit of that thrift by obtaining an offset from the plaintiff’s damages for the amount covered by the plaintiff’s insurance.
Thus, for example, a defendant’s liability for damages is not reduced by the plaintiff’s life insurance benefits in a wrongful death case, or by an injured plaintiffs’ disability insurance benefits in a claim for lost wages. And if the plaintiff incurs $100,000 in medical expenses, that amount is still recoverable by the plaintiff as damages from the defendant, even if the plaintiff is indemnified against that debt through health insurance.
This doctrine has long been held sacred by the California Supreme Court. Helfend v. Southern California Rapid Transit District (1970) 2 Cal.3d. 1. The rationale for the doctrine is that as between an innocent plaintiff who has been injured and a wrongdoing tortfeasor, the one who should benefit from the medical insurance is the person who paid the premiums for it – whose work, thrift and foresight provided the advantage – and not the defendant who caused the injury.
Tort defendants have been attacking that doctrine forever (Helfend involved such an attack), but they began vigorously attacking health insurance benefits following the case of Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th 298. In that case the court of appeal took a 1988 appellate case concerning Medi-Cal benefits, misapplied it to private health insurance benefits, and issued a statement at odds with contract law and with existing Supreme Court decisional law. Medi-Cal (i.e., Medicaid) benefits are legally distinct from private health insurance, in that where Medicaid benefits are provided, federal and state law remove the right of recovery for those medical services from the patient, and assign those rights to the state. Arkansas Department of Health Services v. Ahlborn (2006) 547 U.S. 268; Welfare & Institutions Code §§14124.70, et. seq.
In the early 1980s, the California legislature issued a strong public policy statement in amending the laws governing medical providers and health plans. To benefit health plan members, the legislature authorized and encouraged doctors, hospitals and health plans to negotiate and enter into contracts for their mutual benefit. They would agree to a reduced schedule of payments in exchange for prompt payment, a guaranteed volume of business, and other benefits.
So, back to the earlier example, if a patient is a health plan member, and chooses doctors and hospitals that have a contract with their health plan, the patient incurs $100,000 in debt to their medical providers, but those providers will receive a lesser amount in cash–precisely because those providers agreed to give the health plan a discount in exchange for other benefits. Even though Insurance Code Section 10133(b) expressly says those negotiated rates are benefits to health plan members for using contracted medical providers, tort defendants want to take that benefit away by discounting their liability.
Howell v. Hamilton Meats & Provisions, Inc. (2009) 179 Cal.App.4th 686 was the first case to analyze these negotiated rate differentials under California’s collateral source rule. The decision confirmed that the amount of financial obligation for a plaintiff insured under a health care plan remains the total amount charged by the provider under its usual and customary rates, not merely the discounted amount actually paid.
The California Supreme Court granted review in Howell on March 11. Insurers, manufacturers and the California Chamber of Commerce may tout the grant of review as a victory. But if the Supreme Court had agreed with them that Howell was just plain wrong, it could simply have granted their request to depublish the case. It didn’t.
The grant of review is a good sign for hard-working Californians. The Supreme Court’s own decisions and statutory law support the Howell decision, most specifically, the Supreme Court’s unanimous decision in Parnell v. Adventist Health System/West (2005) 35 Cal.4th 595.
In City and County of San Francisco v. Sweet (1995) 12 Cal.4th 105, 117, and Mercy Hospital and Medical Center v. Farmers Insurance Group of Companies (1997) 15 Cal.4th 215, the Supreme Court had confirmed that a medical provider and patient have a creditor-debtor relationship for the provider’s usual rates. (Parnell, supra, 35 Cal.4th at 606.) Parnell held that, pursuant to the contract between the hospital and the patient’s health plan, payment by the health plan at the negotiated rate extinguished the patient’s entire debt for the provider’s usual rates. (Id., at 611.) In other words, the negotiated rate differentials benefit the insured patient by extinguishing that part of the patient’s debt. While Parnell did not involve the collateral source rule, the Court’s analysis of the contract benefits is the same analysis Howell employed.
The unanimous Parnell decision confirms the legislature’s strong public policy concerns in enacting the statutory scheme that authorized and encouraged negotiated rate contracts between health plans and medical providers, i.e., Insurance Code § 10133.6; Business & Professions Code § 16770; and Health & Safety Code § 1342.6. Those statutes were designed to protect the interests of health plan members when they agree to obtain their medical care from providers designated by their health care plan. Those statutes and Supreme Court’s jurisprudence confirm that the negotiated rate differentials belong to the contracting health plan’s members. (Ins. Code §10133(b).) And that’s what the collateral source rule does.
We are encouraged that the grant of review by the Supreme Court was unanimous. Given the challenge that Hamilton Meats and its supporters have mounted to the Supreme Court’s long-established and frequently unanimous decisional precedent, as well as to numerous legislative enactments, the Court should indeed act in unison to rebuke the radical activist overreach sought by Hamilton Meats and its supporters.
Scott H.Z. Sumner is a partner in the consumer law firm, Hinton, Alfert & Sumner, in Walnut Creek and San Francisco. He drafted an amicus brief for Consumer Attorneys of California in support of plaintiff in Howell v. Hamilton Meats, Olsen v. Reid, and co-authored amicus briefs in several other cases touching on the collateral source rule. Christopher B. Dolan is owner of The Dolan Law Firm in San Francisco and 2010 president of Consumer Attorneys of California.