Trial lawyers want more money

August 6, 2012

By Katy Grimes

Trial lawyers are not content to win medical damages cases and get paid a chunk of the damages awarded to the plaintiff. They are going after a bigger piece of the insurance pie.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, and California trial lawyers are pushing a bill at breakneck speed through the Legislature to up the anty on medical damages award cases, thereby dramatically increasing what trial lawyers are paid.

But this will come at a significant cost to the state, which already has financially strapped local governments filing for bankruptcy.

‘Just say no’ to the Supreme Court

SB 1528, by Steinberg, aims at repealing a recent Calfornia Supreme Court decision, Howell vs. Hamilton Meats, to allow plaintiffs to recover past medical damages listed in a health care provider’s bill, instead of the actual amount paid to providers by insurers. These are not damages owed to the injured person.

In deciding Howell vs. Hamilton, the court stated, “We hold no such recovery is allowed, for the simple reason that the injured plaintiff did not suffer any economic loss in that amount.”

Even the one dissenting justice agreed that the plaintiff was not entitled to recover the potentially inflated amount of the medical bills, but disagreed that the amount should be capped at the discounted amount the provider agreed to accept as payment in full from the insurer.

The issue at hand was the state’s collateral source rule which states that the tortfeasor — the person who commits the wrongful act — shouldn’t benefit from the fact that the victim purchased insurance. That’s why the insurer still has to pay for the medical expenses, even if the victim did not have out-of-pocket medical expenses.

But the court held that discounts are different; that it would be a windfall for the victim to recover extra money just because his insurance company got a discount.  The discounts are merely the negotiated amount to be paid by the insurance company to the medical provider. The higher rate before negotiation is never paid.

Medi-Cal windfalls

Where this case becomes of even more interest is when Medi-Cal is involved. Medi-Cal is  is California’s government funded Medicaid health care program. This program pays for all medical services for children and adults who have either low or no income, or if they are on welfare.

Trial laywers contend that the law is unclear. But the 6-1 Supreme Court ruling was very clear that injured plaintiffs were only entitled to the amount paid by the third-party insurer. However, in Medi-Cal cases, this could be motivation for an increase in lawsuits and higher litigation costs.

While federal law requires state Medicaid plans to establish schemes for reimbursing health care providers similar to the negotiated rates by private insurers and medical providers, the law also prohibits providers from recovering lien amounts in excess of the Medicaid payment.

Bill analysis states, “The same holds true outside the Medi-Cal setting. Because of the Howell case, it is unclear how an injured person proves their damages. Hospitals (Civ. Code Sec. 3045.1) and HMOs health maintenance organizations] (Civ. Code Sec. 3040) have subrogation and lien rights to be reimbursed out of an injured person’s recovery. Again, if the injured person cannot introduce the reasonable cost of medical care, and therefore cannot recover those costs, they are unable to reimburse hospitals or HMOs.”

Local government on-the-hook

County governments could be on the hook for substantial financial damages if this bill is passed and signed into law. Cities, counties, municipalities school districts and state agencies face thousands of lawsuits every year.  While some of the cases are small, many are large and expensive, and every dollar paid out for lawsuits comes out of the pockets of taxpayers.

Taxpayers are paying for these lawsuits, because local governments which self-insure, pay for all medical expenses, and the injured parties face no future cost or liability. The bigger question than even that of the third party private insurer is: Why should the taxpayers continue to support local governments diverting money away from important public services to increase damages awards to trial lawyers?

“Government spends a huge amount of time as defendant, and this bill cost will cost nearly three-times as much,” said Craig Brown, with the Cooperative of American Physicians. Brown explained that there are hundreds and hundreds of lawyers who work for state agencies, city and county governments, who are paid by taxpayer funds to fend off myriads of lawsuits every year. While the cost of damage awards would increase if SB 1528 is passed, there are many other costs associated with lawsuits which would increase as well, dramatically increasing teh total cost of litigation.

The costs of experts on both sides would increase because if attorneys for the plaintiffs can claim more in damages than usual and customary medical costs, and not just what was paid to providers, the sky is the limit — and all funded by taxpayers.

6-1 is very clear

“The 6 to 1 decision by California’s highest court reaffirmed a bright line rule in calculating medical damages — actual or contracted amount,” said Association of California Insurance Companies Vice President Armand Feliciano.  “The Court clearly said in their decision ‘We hold no such recovery is allowed, for the simple reason that the injured plaintiff did not suffer any economic loss in that amount.” To suggest that the calculation of medical damages in California is uncertain or needs clarification is patently misleading.  The Howell decision and supporting case law has been the law in California since 1988.”

A coalition of more than 24 diverse business associations is very concerned about such significant changes being made to a recently mandated law, particularly through the non-transparent spot bill process. There have been no real debates on the merit of the bill so far in committee hearings, and it appears that the bill will be ramrodded through an Assembly floor vote as well.

The coalition fears that damages could end up tripling what they currently are. And a bigger worry according to the insurance association is that Steinberg is playing “hide the ball” with amendments. Promises of amendments have been made, but so far, these phantom amendments have not materialized, and the bill is on the Assembly floor already awaiting a vote.

The purpose of hiding the phantom amendments is to keep the public from knowing about them, and keep interested parties from being able to argue for or against them in a public hearing. Feliciano said that they had been working with Steinberg and proponents to find common ground. But it became clear that the author and sponsor merely want to overturn the law and open the floodgates to larger financial awards.

“Members of the Assembly should take a very close look at this bill when it comes before them,” said Feliciano.  “Assemblymembers should ask two questions: 1. Is it right to compensate someone for damages that were never paid or incurred?  2. Is now the time to increase the cost of insurance to homeowners and drivers and every business and public entity that buys liability coverage in California?”

The insurance association said that if this bill is passed, the higher damages lawsuits and awards will be expanded to homeowners insurance, auto insurance and workers compensation insurance.

SB 1528 was passed by the State Senate on a party line vote, 22 to 13 May 30.