More from Scott Sumner on the Yanez decision and the collateral source rule
Wednesday, June 30, 2010
By Scott Sumner
In my recent commentary for the Daily Journal, I quoted the Yanez court, which stated that “patients covered by private health insurance are charged reduced rates by the provider for their care as an insurance benefit negotiated between the insurer and the health care provider.”
The court made its statement in discussing what it called the “marketplace realities” in today’s health care system here in California.
In fact, patients are not charged reduced rates. Rather, the reduced rates are what medical providers give to health plans in exchange for other contract benefits. The Yanez decision details many of those benefits.
As the Supreme Court held in Parnell v. Adventist Health System/West (2005) 35 Cal. 4th 595, patients are debtors for their medical providers’ full charges, and the benefit of health insurance is that the patient’s “entire debt” is “extinguished.”
The Yanez court’s statement is shorthand description of the way the market works in health care. To understand it is simple, as long as you remember there are three different contracts amongst three different parties, and each contract is entered into only by two of the three parties – the tort plaintiff/medical patient/health plan member, the medical provider, and the health plan. In each of these contracts, as in every contract, both parties give something up to get something.
First, the contract between the medical provider and patient:
- • A creditor-debtor relationship arises when the provider gives medical care and services to the patient.
- • The debt is for the provider’s charges, in the full amount of the bill.
- • The financial debt is the patient’s detriment, medical services are their benefit.
- • The medical provider gives expertise and services, and acquires a creditor status and the right to payment in return.
Second, the contract between the plan member and health plan:
- • Premiums/contributions in exchange for indemnity.
- • Member (the patient in the first example) pays premiums to a health plan or makes financial contributions to a self-funded ERISA Plan or to Medicare, in exchange for a prospective defined right of indemnity (usually requiring additional payment of co-payments and deductibles by the plan member) against debt and liability as described in the first example, all the while hoping never to actually need the benefit. The extent of benefits are usually expressly and strictly conditioned upon the member obtaining care from medical providers that contract with the Plan.
- • Plan collects premiums/contributions and agrees to provide indemnity as defined in the plan, which typically requires the plan member to contribute certain co-payments and deductible amounts to medical providers.
And third, the contract between the medical provider and health plan:
- • Health plan has pre-collected funds from a large population of potential medical services consumers.
- • A contract with the plan gives a medical provider marketing advantages (i.e., advertising to and access to those consumers), rapid payment, volume business, administrative savings (less collection costs, smaller billing and administrative staff), and other benefits.
- • Those savings “allows and induces them to accept a reduced rate for their services” from the health plan.
- • Health plan uses the savings from the reduced contract rates of payment to cover its own overhead and expenses, to profit, and to gain a competitive advantage over other health plans.
The take away from Yanez is simple, though: Courts reviewing the three different contractual relationships amongst these parties repeatedly recognize that the contractual allowances are what the providers give the plans in consideration for contracts with the plan, and that those arrangements are used by the plan – in conjunction with the negotiated reduced cash payments – to provide its member (the patient) the benefit to indemnity against the full charge.
Notice that the defendant/tortfeasor is not a party to any of those three contracts. The defendant gives up nothing – defendant pays no premiums or contributions to the health plan, provides no indemnity to the plaintiff, gives no marketing or financial advantages to the doctors, does not bear the cost of running a health plan, and gives no discounts to the health plan.
As between a plaintiff and a defendant in a lawsuit when someone sues the person or company that caused their injury, only the plaintiff has given something up to get their health coverage. Indemnity against healthcare costs is not only a collateral benefit, it is the plaintiff’s collateral benefit.
The court in Howell v. Hamilton Meats (Supreme Court review granted) understood these marketplace realities, the Yanez court understands them, and the California Supreme Court understands them. Helfend v. So. Cal Rapid Transit Dist. (1970) 2 Cal. 3d 1; Acosta v. So. Cal Rapid Transit Dist. (1970) 2 Cal. 3d 19; City and County of San Francisco v. Sweet (1995) 12 Cal. 4th 105; Mercy Hosp. and Medical Center v. Farmers Ins. (1997) 15 Cal. 4th 213; Parnell, supra; and Prospect Medical Group v. Northridge Emergency Medical Group (2009) 45 Cal. 4th 497.
The only people who don’t want to understand all this are the liability insurers and corporations who made no contributions to the system as a tortfeasor.
Scott H.Z. Sumner is a partner in the consumer law firm, Hinton, Alfert & Sumner in Walnut Creek and San Francisco.