HOWELL v. HAMILTON INTERPRETED BY SANCHEZ v. STRICKLAND: AN INJURED PLAINTIFF MAY RECOVER PAST MEDICAL EXPENSES GRATUITOUSLY WRITTEN OFF BY A MEDICAL PROVIDER

SANCHEZ v. STRICKLAND
(California Court of Appeal, Fifth Appellate District, November 4, 2011)

In Howell v. Hamilton Meats & Provisions, Inc., 52 Cal. 4th 541 (August 18, 2011) (Howell), the California Supreme Court explained that “[w]hen a tortiously injured person receives medical care for his or her injuries, the provider of that care often accepts as full payment, pursuant to a preexisting contract with the injured person’s health insurer, an amount less than that stated in the provider’s bill.” The Court addressed the issue of whether, in this circumstance, the injured person may recover from the tortfeasor, as economic damages for past medical expenses, the undiscounted sum stated in the provider’s bill but never paid by or on behalf of the injured person. The Court held that “no such recovery is allowed, for the simple reason that the injured plaintiff did not suffer any economic loss in that amount.” The Court explained that “the general rule under…California law, is that a personal injury plaintiff may recover the lesser of (a) the amount paid or incurred for medical services, and (b) the reasonable value of the services.” (Italics in original.)

In so holding, the Court addressed the application of the collateral source rule, which precludes a plaintiff’s damages from being reduced by amounts the plaintiff has received from sources independent of the tortfeasor, such as health insurance. The Court stated that the collateral source rule has no bearing on amounts that were included in a provider’s bill but for which the plaintiff never incurred liability because such sums “do not represent an economic loss for the plaintiff” and therefore “are not recoverable in the first instance.”

In Sanchez v. Strickland (Sanchez; decided November 4, 2011), in an unpublished portion of the opinion, the Court of Appeal concluded that the holding of Howell applies not only to private health insurers, but also to medical bill reductions negotiated by Medicare and Medi-Cal. While this portion of the Sanchez opinion is not citable, it is consistent with a predecessor to Howell: Hanif v. Housing Authority, 200 Cal. App. 3d 635 (1988).

The Court of Appeal in Sanchez also holds, in a published portion of the opinion, that “the limitation on recovery set forth in Howell does not extend to amounts gratuitously written off by a medical provider,” such that those gratuitously written off amounts remain recoverable damages. The Court of Appeal in Sanchez noted that the Supreme Court in Howell had discussed whether its holding was potentially inconsistent with a rule of law that might allow a plaintiff to recover the reasonable value of service rendered gratuitously:

“We see no anomaly, even assuming we would recognize the gratuitous-services exception to the rule limiting recovery to the plaintiff's economic loss. The rationale for that exception – an incentive to charitable aid (Arambula v. Wells, 72 Cal.App.4th 1013) – has [] no application to commercially negotiated price agreements like those between medical providers and health insurers.”

Thus, with the tacit advance approval of the Supreme Court in mind, the Court of Appeal in Sanchez adopted the following rule of law: “Where a medical provider has (1) rendered medical services to a plaintiff, (2) issued a bill for those services, and (3) subsequently written off a portion of the bill gratuitously, the amount written off constitutes a benefit that may be recovered by the plaintiff under the collateral source rule.”

The key distinction between Howell and Sanchez is that Howell involves negotiated discounts that a plaintiff cannot recover as damages, whereas Sanchez involves gratuitous discounts that a plaintiff can recover as damages.

Should you desire a copy of the Court of Appeal’s decision or any other additional information, please feel free to contact us.


David V. Moore
Frank T. Sabaitis

(DMoore@sollp.com)
(FSabaitis@sollp.com)