Insured Plaintiff Who Treats Outside Medical Plan on Lien Basis is Deemed Uninsured Under the Law Al

This week, the California Court of Appeal, Second Appellate District, Division Six held in Pebley v. Santa Clara Organics, LLC et al., (No. B277893) that an insured plaintiff who elects to treat out-of-network shall be considered uninsured for the purpose of determining economic damages, and may introduce evidence of the full amounts billed for medical services. Thus, insured plaintiffs may now be able to recoup the full “billed” amount of medical services even though the medical provider would have received discounts had doctors and facilities which it covered been used.

This opinion constitutes yet another expansion of Howell/Hanif and its progeny. In 1988, Hanif v. Housing Authority (1988) 200 Cal.App.3d 635 held that a plaintiff receiving benefits such as Medi-Cal with a pre-negotiated price for medical services is capped by the pre-negotiated price in recovering economic damages. In 2011, Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541 extended the ruling in Hanif to apply to situations involving private medical insurance. Those cases established that an insured plaintiff may not recover more than the amount paid by his or her insurer for medical services provided. As such, evidence of the full amount billed by a medical provider was deemed irrelevant and inadmissible for purposes of establishing an insured plaintiff’s past or future medical expenses.

In 2014, Ochoa v. Dorado (2014) 228 Cal.App.4th 120 held that even where there is no pre-negotiated price for medical services, the full amount charged/billed to a plaintiff for unpaid medical services was not relevant to determine the reasonable value of the services provided.

In 2015, Bermudez v. Ciolek (2015) 237 Cal.App.4th 1311 addressed the issue of an uninsured plaintiff, holding that an uninsured plaintiff’s economic damages should be determined by evaluating the reasonable value of the medical services rendered or expected to be rendered. In this regard and contrary to Ochoa, Bermudez permitted an uninsured plaintiff to introduce evidence of the full amounts charged/billed by his or her healthcare providers for the purpose of proving the reasonable value of those services. An uninsured plaintiff, however, is generally required to offer expert testimony to establish that the amount billed is in fact a reasonable value of the services rendered.

The decision in Pebley takes Bermudez one step further. In Pebley, plaintiff was injured in a motor vehicle accident caused by defendant, an employee of defendant Santa Clara Organics, LLC. Although plaintiff had health insurance through Kaiser, he elected to obtain medical services outside his insurance plan. A jury found defendants liable for plaintiff’s injuries and, for the most part, awarded plaintiff the full amounts that were billed for past services and expected to be incurred for future services.

Although plaintiff testified he went out-of-network based on a referral from a member of his men’s group, the defense presented evidence of an article written by plaintiff’s attorneys which suggested an insured plaintiff can use the lien form of medical treatment to sidestep Howell/Hanif and increase the settlement value of a case. The defense further argued that while plaintiff had a right to choose his doctors, he also had a duty to mitigate his damages by relying on his Kaiser plan, which he failed to do. The Pebley court rejected these arguments, stating that “[a] tortfeasor cannot force a plaintiff to use his or her insurance to obtain medical treatment caused by the tortfeasor. That choice belongs to the plaintiff.” As such, the Court concluded that in such circumstances, the plaintiff should be treated as uninsured for purposes of determining the value of his or her economic damages.

Accordingly, plaintiff was allowed to introduce evidence of the full amount of his unpaid medical bills for the purpose of establishing the reasonable cost of his past and future medical expenses. Notably, both plaintiff and defendant were permitted to offer competing experts who testified as to reasonableness of the medical services and bills and whether they were customary in the industry.

The holding in Pebley was reached despite recognition that medical providers will substantially reduce the costs of their services when rendered on a lien basis. In light of Pebley, it can be expected that most insured plaintiffs will now seek medical treatment outside of his or her insurance plans on a lien. In response, defense counsel must be more diligent in questioning and cross-examining physicians treating on a lien basis regarding their knowledge and understanding of their billing practices, their discounted rates, and their relationship with plaintiff’s counsel who likely is the referring source. Defense counsel must also ask the physicians how often they actually demand and receive the full amounts charged vs. how often their lien patient’s invoices are reduced or waived, and under what circumstances. Defense counsel must also seek the production of records to evaluate the physician’s collection efforts and practices as it pertains to litigation lien patients. Similarly, we can expect plaintiffs’ attorneys to be more diligent in establishing the foundation required to introduce invoices into evidence. Absent a plaintiff’s ability to overcome hearsay issues relating to a physician’s invoices, defense counsel should refuse to stipulate to the admissibility of any such invoices.

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