Hanif, Howell, and Medical Factoring in Personal Injury Lawsuits
by Karen A. Feld on October 23, 2014
posted in Damages,
Overview
In a run-of-the-mill personal injury lawsuit, a plaintiff will seek medical treatment from a provider. The provider will bill $x and that number forms the basis for damages in a lawsuit. For example, if the plaintiff has surgery and the surgery costs $20,000, then $20,000 is the number shown to the jury. The jury uses that number to come to a total damages award. (By law, payments made by an insurance company cannot be presented to the jury.)
Factoring companies have entered the personal law arena by making it profitable to increase the medical bills thereby increasing the jury verdicts.
Using the scenario as described above and applying the factoring principles, a plaintiff would go to a contracted hospital. Instead of charging $20,000 for the surgery, the hospital would charge $500,000 (made up number). The factoring company then buys hospital’s accounts receivable ($500,000) for a contracted discounted rate (ex/ $10,000) and in return gets an assignment, because the hospital does not write off the balance of its book charge. In theory, the plaintiff/patient is still obligated to pay the balance of his medical bill. When the plaintiff goes to trial, they tell the jury that the surgery cost $500,000 and the jury will use that (inflated) number to come to a verdict. Obviously, manipulating the cost of the surgery increases the money that the plaintiff and his/her attorney receives. Factoring companies can also get involved when a medical facility gives access to their patients’ medical records or they cull out potential clients.
The factoring companies claim that because they can (in theory) sue the plaintiff for the balance of the surgery cost, the plaintiff is entitled to recover the full amount of the bill and no one (including the judge or jury) should know that the factoring company actually paid $10,000 to buy the $50,000 surgery.
Defense attorneys have argued that we should be allowed to get this information in discovery and to produce this evidence to the jury. Defense attorneys need to know how much the factoring companies paid to buy the accounts receivables because the amount paid by the factoring company to the hospital is evidence of the reasonableness of the billing.
How it Works
Factoring companies have methods to “identify” possible qualifying patients. To qualify, the case giving rise to the eventual lawsuit must show that someone else is responsible for causing the accident, the plaintiff/ patient must be uninsured or underinsured, have no financial wherewithal to pay their medical bills and not qualify for Medicare or Medi-Cal. The patient must have an attorney and an active lawsuit. The company then contacts the attorney for those cases. If the patient already has an attorney and the patient needs further treatment or surgeries, the company will bring those cases back to the hospital and to the physician to do more work on the patient on a lien basis.
After identifying those patients, the factoring company (1) purchases receivables owed to a hospital for emergency or trauma services to a patient and (2) purchases receivables owed for follow-up medical care and surgeries. Subpoenas served on the factoring company will be opposed by the company’s general counsel. We have been successful in obtaining the information by a discovery motion, as well as producing this information at trial.
Legal Analysis
“A personal injury plaintiff may recover the lesser of (a)” the Hanif cap at the “amount paid or incurred for medical services,” and “(b) the reasonable value of the services” (Howell, at p.555-556).
Plaintiffs incorrectly argue that introducing evidence of the factoring arrangement is an attempt to put a cap on the recovery.
The introduction of such evidence is relevant and admissible on the reasonable value, impeachment of the provider’s credibility and bias in proportion to the disparity between what the provider says is reasonable and the amount the provider was actually willing to accept in full.
Factoring was not addressed either by Howell v. Hamilton Meats (2011) 52 Cal.4th 541 or Katiuzhinsky v. Perry (2007) 152 Cal.App.4th 1288 nor did they address Howell’s second method of determining damages, the reasonable value of services. The price a provider accepts in full for services is relevant and admissible on the issue of reasonable value
We have been successful in not only obtaining the documents by court order, but also introducing this testimony before a jury. We believe that this evidence was crucial in the defense verdict of a case involving a rear-ender where damages were almost $500,000 in medical specials for two plaintiffs.
