Opinion ID: 844253
Heading Depth: 2
Heading Rank: 4

Heading: The Negotiated Rate Differential as Insurance Benefit

Text: If the negotiated rate differential is not a gratuitous payment by the provider to the injured plaintiff (recoverable, at least in the Restatement's view, under the collateral source rule), nor an arbitrary reduction (arguably recoverable to prevent a defense windfall and underdeterrence), is it, as plaintiff contends and the Court of Appeal held, recoverable as a benefit provided to the insured plaintiff under her policy? Plaintiff contends the negotiated rate differential represents the monetary value of the administrative and marketing advantages a provider obtains through its agreement with the insurer. Having incurred liability for the full price of her medical care, plaintiff maintains, she then received the benefit of having her insurer extinguish that obligation through a combination of cash payments and noncash consideration in the amount of the negotiated rate differential. Both parts of this consideration being benefits accruing to her under her policy, for which she paid premiums, both parts should assertedly be recoverable under the collateral source rule. We disagree. As previously discussed, plaintiff did not incur liability for her providers' full bills, because at the time the charges were incurred the providers had already agreed on a different price schedule for PacifiCare's PPO members. (See Parnell v. Adventist Health System/West, supra, 35 Cal.4th at p. 609.) Having never incurred the full bill, plaintiff could not recover it in damages for economic loss. For this reason alone, the collateral source rule would be inapplicable. The rule provides that if an injured party receives some compensation for his injuries from a source wholly independent of the tortfeasor, such payment should not be deducted from the damages which the plaintiff would otherwise collect from the tortfeasor.  ( Helfend, supra, 2 Cal.3d at p. 6, italics added.) The rule does not speak to losses or liabilities the plaintiff did not incur and would not otherwise be entitled to recover. As was explained by an Oregon justice, The collateral source doctrine does not address the amount of damages that a plaintiff can recover in the first instance. ( White v. Jubitz Corp. (2009) 347 Or. 212 [219 P.3d 566, 584] (dis. opn. of Kistler, J.); see also Goble v. Frohman (Fla. 2005) 901 So.2d 830, 833 (conc. opn. of Bell, J.) [collateral source rule has no application where plaintiff has not paid, nor is he obligated to pay, the prediscount amount of his medical bills].) Certainly, the collateral source rule should not extend so far as to permit recovery for sums neither the plaintiff nor any collateral source will ever be obligated to pay. (Beard, The Impact of Changes in Health Care Provider Reimbursement Systems on the Recovery of Damages for Medical Expenses in Personal Injury Suits (1998) 21 Am. J. Trial Advoc. 453, 489.) The negotiated rate differential lies outside the operation of the collateral source rule also because it is not primarily a benefit to the plaintiff and, to the extent it does benefit the plaintiff, it is not provided as compensation for [the plaintiff's] injuries. ( Helfend, supra, 2 Cal.3d at p. 6.) Insurers and medical providers negotiate rates in pursuit of their own business interests, and the benefits of the bargains made accrue directly to the negotiating parties. The primary benefit of discounted rates for medical care goes to the payer of those ratesthat is, in largest part, to the insurer. Nor does the insurer negotiate or the medical provider grant a discounted payment rate as compensation for the plaintiff's injuries. As one amicus curiae observes, sellers in almost any industry may, for a variety of reasons, discount their prices for particular buyers, [b]ut a discounted price is not a payment.... [¶] ... [¶] Nor has the value of damages the plaintiff avoided ever been the measure of tort recovery. And even when the overall savings a health insurance organization negotiates for itself can be said to benefit an insured indirectlythrough lower premiums or copayments, for exampleit would be rare that these indirect benefits would coincidentally equal the negotiated rate differential for the medical services rendered the plaintiff. Finally, while the providers presumably did obtain some commercial advantages by virtue of their agreements with PacifiCare, plaintiff's insurer, the global value of those advantages cannot be equated to the amount of the negotiated rate differential for plaintiff's individual care. As we have seen, a medical care provider's billed price for particular services is not necessarily representative of either the cost of providing those services or their market value. Within a single hospital's chargemaster, for example, [m]ark-ups tend to vary by service line, with high cost items receiving a lower mark-up than low cost items. (Dobson et al., A Study of Hospital Charge Setting Practices, supra, at p. v.) The price schedules for PacifiCare members, meanwhile, were negotiated for the entire PPO membership, not individually for plaintiff, and covered a range of medical services Scripps and CORE provided, not only those rendered to plaintiff. For a given medical service to a given plaintiff, therefore, the amount of the negotiated rate differential may be higher or lower than the average discount over the range of services offered. The negotiated rate differential in a particular case thus does not necessarily reflect the commercial advantages the provider obtained in exchange for accepting a discounted payment in that case. (17) We conclude the negotiated rate differential is not a collateral payment or benefit subject to the collateral source rule. We emphasize, however, that the rule applies with full force here and in similar cases. Plaintiff here recovers the amounts paid on her behalf by her health insurer as well as her own out-of-pocket expenses. No credit[] against the tortfeasor's liability (Rest.2d Torts, § 920A, subd. (2)) and no deduction from the damages which the plaintiff would otherwise collect from the tortfeasor ( Helfend, supra, 2 Cal.3d at p. 6) is allowed for the amount paid through insurance. Plaintiff thus receives the benefits of the health insurance for which she paid premiums: her medical expenses have been paid per the policy, and those payments are not deducted from her tort recovery. Plaintiff's insurance premiums contractually guaranteed payment of her medical expenses at rates negotiated by the insurer with the providers; they did not guarantee payment of much higher rates the insurer never agreed to pay. Indeed, had her insurer not negotiated discounts from medical providers, plaintiff's premiums presumably would have been higher, not lower. In that sense, plaintiff clearly did not pay premiums for the negotiated rate differential. Recovery of the amount the medical provider agreed to accept from the insurer in full payment of her care, but no more, thus ensures plaintiff receive[s] the benefits of [her] thrift and the tortfeasor does not garner the benefits of his victim's providence. ( Helfend, supra, 2 Cal.3d at p. 10.) In holding plaintiff may not recover as past medical damages the amount of a negotiated rate differential, then, we do not alter the collateral source rule as articulated in Helfend and the Restatement. Rather, we conclude that because the plaintiff does not incur liability in the amount of the negotiated rate differential, which also is not paid to or on behalf of the plaintiff to cover the expenses of the plaintiff's injuries, it simply does not come within the rule. [A] rule limiting the measure of recovery to paid charges (where the provider is prohibited from balance billing the patient) ... provides certainty without violating the principles protected by the collateral source rule. Even with a limit of recovery to the net loss there is no lessening of the deterrent force of tort law, the defendant does not gain the benefit of the plaintiff's bargain, and the plaintiff receives full compensation for the amount of the expense he was obligated to pay. (Beard, The Impact of Changes in Health Care Provider Reimbursement Systems on the Recovery of Damages for Medical Expenses in Personal Injury Suits, supra, 21 Am. J. Trial Advoc. at p. 489.) There is, to be sure, an element of fortuity to the compensatory damages the defendant pays under the rule we articulate here. A tortfeasor who injures a member of a managed care organization may pay less in compensation for medical expenses than one who inflicts the same injury on an uninsured person treated at a hospital (assuming the hospital does not offer the person a discount from its chargemaster prices). But, as defendant notes, [f]ortuity is a fact in life and litigation. To use an example provided by amicus curiae League of California Cities, when a driver negligently injures a pedestrian the amount of lost income the injured plaintiff can recover depends on his or her employment and income potential, a matter of complete fortuity to the negligent driver. In that situation as in this, [i]dentical injuries may have different economic effects on different victims. We should not order one defendant to pay damages for an economic loss the plaintiff has not suffered (Civ. Code, §§ 3281, 3282) merely because a different defendant may have to compensate a different plaintiff who has suffered such a loss. [10] (18) We hold, therefore, that an injured plaintiff whose medical expenses are paid through private insurance may recover as economic damages no more than the amounts paid by the plaintiff or his or her insurer for the medical services received or still owing at the time of trial. In so holding, we in no way abrogate or modify the collateral source rule as it has been recognized in California; we merely conclude the negotiated rate differentialthe discount medical providers offer the insureris not a benefit provided to the plaintiff in compensation for his or her injuries and therefore does not come within the rule. For this reason, plaintiff's argument that any reform of the collateral source rule should come from the Legislature rather than this court misses the mark. Government Code section 985 and Civil Code section 3333.1, which limit or eliminate the collateral source rule for cases involving, respectively, public entity defendants and negligence of a health care provider, simply do not speak to the issue presented here. Our holding neither contradicts or undermines these statutes nor alters their operation. Trial courts continue to have authority to reduce a plaintiff's recovery against a public entity under Government Code section 985; in an action arising from the professional negligence of a health care provider, evidence of indemnity payments made to the plaintiff, and premiums paid by the plaintiff, continues to be admissible under the circumstances set out in Civil Code section 3333.1. (19) It follows from our holding that when a medical care provider has, by agreement with the plaintiff's private health insurer, accepted as full payment for the plaintiff's care an amount less than the provider's full bill, evidence of that amount is relevant to prove the plaintiff's damages for past medical expenses and, assuming it satisfies other rules of evidence, is admissible at trial. Evidence that such payments were made in whole or in part by an insurer remains, however, generally inadmissible under the evidentiary aspect of the collateral source rule. ( Hrnjak v. Graymar, Inc., supra, 4 Cal.3d at p. 732.) Where the provider has, by prior agreement, accepted less than a billed amount as full payment, evidence of the full billed amount is not itself relevant on the issue of past medical expenses. We express no opinion as to its relevance or admissibility on other issues, such as noneconomic damages or future medical expenses. (The issue is not presented here because defendant, in this court, conceded it was proper for the jury to hear evidence of plaintiff's full medical bills.) (20) Where a trial jury has heard evidence of the amount accepted as full payment by the medical provider but has awarded a greater sum as damages for past medical expenses, the defendant may move for a new trial on grounds of excessive damages. (Code Civ. Proc., § 657, subd. 5.) A nonstatutory  Hanif motion is unnecessary. The trial court, if it grants the new trial motion, may permit the plaintiff to choose between accepting reduced damages or undertaking a new trial. ( Id., § 662.5, subd. (b).) (21) In the case at bench, the trial court correctly ruled plaintiff could recover as damages for her past medical expenses no more than her medical providers had accepted as payment in full from plaintiff and PacifiCare, her insurer. The Court of Appeal, believing incorrectly that this ruling violated the collateral source rule, reversed the trial court's ruling on the merits and thus had no occasion to resolve plaintiff's claims of procedural and evidentiary error. As these issues were not resolved in the Court of Appeal, they were not included in defendant's petition for review, and we do not address them. (Cal. Rules of Court, rule 8.516(b)(1).) On remand the Court of Appeal may, as appropriate, consider any remaining issues regarding the procedures and evidence on which the trial court ordered the damages reduced.