Recovery of Medical Expenses Under Hanif/Nishihama, Published Law360

June 2010

By Brian M. Plessala, Gray Duffy LLP
Published in Law360

When a personal injury plaintiff’s medical providers are reimbursed at a reduced rate for services by third-party payors such as private health insurer, or Medicare or Medicaid (MediCal), what amount is the plaintiff entitled to recover in a settlement or at trial? When may a party liable for those expenses benefit from the reduced rate?

The Hanif/Nishihama doctrine addresses these questions. The following article seeks to explore some of the issues for trial counsel and the claims professional.

Background Information on Medical Billing

When a person is injured and receives treatment, the medical providers will generally prepare a bill for those services representing the “usual and customary” rates. Often the medical providers will require that the patient execute a financial responsibility agreement specifying personal liability for these charges. Health care insurers generally enter into contractual agreements with hospitals and other health care providers to satisfy the bills incurred by their plan members while at the same time using claims data analysis to try to help reduce their client’s health plan costs.

Typically, the plan/insurer will agree to pay reduced rates for specified services rendered to the plan members and the provider is required to accept those reduced payments as payment in full for those services. Care rendered to a patient covered by Medicaid (a federal program that pays for health care for needy people of the state) or Medicare (federal health insurance program for people age 65 and older) is also subject to contractual reduction under specific reimbursements rates. If you are interested in finding out more you may want to visit meetbreeze.com Disability Insurance to find out more about insurance policies.

The Basic Hanif/Nishihama Issue

Following an accident and injury, the plaintiff will undergo medical treatment for injuries and seek as part of the recovery the “cost” of the medical care. This is part of the process to ensure getting back up after suffering an injury is as easy as possible. The medical provider rarely is paid the “usual and customary” rates. It is far more common than the insurer will pay the provider much less under reduced negotiated rates contained in the provider agreements. Is the plaintiff entitled to the providers’ usual and customary (and much higher) rate or the lower rate actually paid?

Hanif Decision

In a 1988 case, Hanif vs. Housing Authority of Yolo County, the court held that a plaintiff’s recovery of damage for medical expenses was limited to the amount actually paid by MediCal (California’s implementation of Medicaid) where the plaintiff, a minor, was never in any danger of becoming personally liable for the full medical bill.

Although Hanif has been criticized, it is still good law, particularly applicable to cases arising in the Third Appellate District covering Sacramento and surrounding counties.

Nishihama Decision

In Nishihama vs. City and County of San Francisco, the First Appellate District Court of Appeal held that the plaintiff’s recovery for medical treatment was limited to the amount her private health care insurer paid to the medical provider and not the amount billed by the provider under its usual and customary rates. Nishihama was essentially a decision which applied the Hanif case to reduced rates paid by private insurers.

Although Nishihama has been criticized and distinguished by other case authority, it has not been overruled and remains valid law, particularly applicable in the counties within the First Appellate District including Alameda, San Francisco and surrounding counties.

Subsequent Decisions

Greer vs. Buzgheia, the appellate court clarified that, at trial, the plaintiff was entitled to present to the jury the full amount of the usual and customary billing as a basis for the jury to make the assessment of general damages (pain and suffering). The trial court then reserves the decision on the propriety of a post trial reduction until after the verdict.

The Greer case also highlights the procedural requirement to request a special verdict form separating out all of the elements of plaintiff’s economic loss, including a separate entry for plaintiff’s past medical expenses, to effectively segregate these elements of damages, to preserve the issue for post-trial determination.

In Katiuzhinsky vs. Perry, the Third Appellate District held that the intervention of a third party in purchasing a medical lien does not prevent the plaintiff from recovering the amounts billed by the medical provider for care and treatment, as long as the plaintiff legitimately incurs those expenses and remains liable for their payment. The court distinguished Hanif/Nishihama because, in this case, plaintiff remained fully liable for the amount of the medical provider’s charges for care and treatment.

Howell Decision and Conflict with Nishihama

In Howell vs. Hamilton Meats & Provisions Inc., the Fourth Appellate District rejected Nishihama and reversed the trial court’s post-trial order reducing a plaintiff’s recovery for medical expenses to the amount paid by plaintiff’s private health care insurance under a negotiated rate with the provider.

The decision was based on the Collateral Source Rule. The court found that the “negotiated rate differential” (the difference between (1) the full amount of the medical provider’s bills; and (2) the lesser amount paid by the private health care insurer) is a benefit within the meaning of the Collateral Source Rule, and thus the plaintiff may recover the amount of that differential as part of the recovery of the economic damages for past medical expenses.

In Howell, the plaintiff executed two separate financial responsibility agreements with her medical providers, agreeing to be financially responsible for all charges. The Howell court concluded that the extinguishment of a portion of plaintiff’s debt to the providers in the amount of the negotiated rate differential was a benefit to plaintiff because she was no longer personally liable for that portion of the debt. The court also concluded that this benefit to Howell was a “collateral source” benefit within the meaning of the Collateral Source Rule.

The Howell court distinguished the Hanif decision, pointing out that the plaintiff in Hanif was a medical beneficiary and there was no evidence that the plaintiff, a minor, was or would become liable for the difference between medical services and the amount medical paid for the services. The plaintiff in Howell was privately insured and incurred personal liability for her medical provider’s usual and customary charges. With regard to Nishihama, the Howell court explicitly disagreed with the holding in Nishihama and the reasoning upon which it was based.

California Supreme Court Action

The California Supreme Court recently accepted review of the Howell decision. As a result, the Howell decision is not good law, at least until the Supreme Court approves it. The Supreme Court is now likely to resolve the conflict between Howell and Nishihama, and its decision to accept reviews indicate the statewide importance of the issue which impacts virtually every personal injury trial, and thus also settlements of these actions.

Conclusion

Until the Supreme Court issues an opinion in Howell, Hanif and Nishihama provide a legal basis for settlements of personal injury cases on a basis of a reduced recovery for medical expenses to the actual amount paid by the insurer, whether Medicare, Medical, or even a private health care insurer.

However, the argument for such a reduced recovery is strongest where the payor is Medicare or Medical; or, where a private insurer is involved, where the plaintiff never was personally liable for the full rate, or is no longer liable due to the insurer accepting as final the lower negotiated rate.

Many trial courts are now faced with the decision of whether to follow Nishihama or the Howell approach, in the determination of whether a reduction can be made to the plaintiff’s medical expenses recovery when the amount has been reduced by a private insurer’s alternative rate scheme with the provider.

In cases of Medicaid or Medicare, it seems fairly clear that, at least where there is no chance of the patient incurring personal liability for the full amount billed, the amount to be compensated to the plaintiff is the reduced amount paid by the government program to the provider. Superior Courts in the First District will generally have to follow Nishihama until further direction from the Supreme Court.

Defense counsel must still as a matter of due diligence take all steps to ensure that the factual and legal issues are properly before the court to maximize the likelihood that the court will follow Hanif/Nishihama and entertain a post-trial motion to reduce medical costs.

The claims professional should be alert to these issues. Counsel must fully investigate and obtain admissible evidence regarding the exact amount of the full medical specials billed, the precise legal status of any reduction, and plaintiff’s remaining liability for the difference. Specifically, the following should be addressed and obtained in discovery:

  1. Billing statements to the plaintiff and complete medical billing provided to the insurer;
  2. Contract between provider and health plan. The record should be supported with evidence establishing that the provider would accept payments from the health plan in amounts less than its normal rates and charges;
  3. Contract between plaintiff and provider. The trial court will need record of any agreement between plaintiff and the provider. For example, specifically addressing if plaintiff was accepted for treatment on contractual terms under which the provider agreed to charge her rates lower than normal rates, pursuant to a contract between provider and health plan;
  4. Contract between plaintiff and health plan. There should be admissible evidence of a contract or agreement between the health plan and the plaintiff;
  5. Admissible evidence from the provider, health plan, or plaintiff that plaintiff has no further financial responsibility to provider or health plan.

Brian Plessala is an associate with Gray Duffy in the firm’s Encino, Calif., office handling personal injury cases, including premises liability, products liability, construction negligence, automobile, medical malpractice and general negligence. He can be reached at bplessala@grayduffylaw.com.

Please Note: This article is necessarily general in nature and is not a substitute for legal advice with respect to any particular case. Readers should consult with an attorney before taking any action affecting their interests.