How Much Can I Recover To Pay My Medical Bills?

The law says that a trier of fact cannot look at whether the plaintiff’s damages have already been paid for by an outside source, whether it be a gift, insurance or any other payment. This is known as the collateral source rule.

However, in 2011 personal injury defendants everywhere won a big victory when the California Supreme Court handed down the case of Howell v. Hamilton Meats & Provisions. While this case does not undo the collateral source rule it does put a cap on how much an injured party can recover for their medical bills and undermines the purpose of the rule.

You see, the problem with the medical system in the United States is that all medical providers are encouraged to inflate their bills so that when they are submitted to the insurance provider, the insurance provider knocks off a large percentage of the bill but still pays more than they would have if the medical provider just charged the market value in the first place.

This concept can be somewhat confusing so I will use an example to help explain it. Let’s say you break your arm. Before putting you into a cast, the doctor must first set your arm to ensure your bone grows back correctly. That performance by the doctor is not free and the doctor must submit a bill to the insurance company to be paid. Let’s say the market value for setting the arm is $100, however, the doctor knows that the insurance company generally will reduce her bills anywhere from 40%-60%. As a result, the doctor, hoping to be paid a fair amount submits a bill of $250 to the insurance company. The insurance company cuts the bill in half and pays the doctor $125 for her services.

Let’s change the hypothetical slightly and say that the doctor only charged what she thought was fair to the insurance company, $100. Well, because reducing medical bills is common practice for the insurance company, the insurance company still reduces the doctor’s bill by 50% and only pays the doctor $50. This is obviously not fair to the doctor. As a result, most medical professionals inflate their billing so that insurance companies reduce their bill to what they actually want to be paid.

Right now you are probably asking yourself what all of this has to do with the collateral source rule and a cap on recovery for medical bills. Well, in the Howell case, the court ruled that because medical bills are so inflated, they cannot be relied upon to set a baseline as to what the actual loss is for the plaintiff and therefore what can be recovered. Instead, the plaintiff can only recover the amount that was paid, or a reasonable value of the services provided if the medical bill was not paid.

While the fact that the insurance company is the entity that paid the medical bill is still not admissible, it becomes clear to the trier of fact (generally the jury) that the plaintiff has medical insurance that paid the plaintiff’s medical bills, which the collateral source rule was designed to prevent (as it is a common assumption that juries award less if they know that the bills were already paid for).

To show how this works in practice, let’s go back to that doctor example. Your recovery against the defendant for medical bills associated with setting your arm would be either $125 or $50 depending on how much the doctor was paid. If, however, the doctor billed any amount but was not paid by the time of trial, you would not be capped at the amount paid (as there was no payment) and instead would be capped at a reasonable value, which can and would be argued about in court.

This obviously leads to the conclusion that it is beneficial to not go through the insurance companies and instead retain complete responsibility for the bill so that you may maximize your recovery. However, this is the wrong conclusion you should make. If you fail at trial, you will still be responsible for your medical bills, whereas if you go through your insurance, you won’t be. Further, the portion of your recovery associated with your medical bills will still be sought by the unpaid medical providers. Whereas, it is common that once the bill is paid, the medical insurance does not seek indemnification for their payments (although it is their right to pursue such indemnification). Finally, if you have insurance and do not go through your insurance, you only invite scrutiny and disbelief from the opposing side. I have personally seen insurance adjustors for car insurance providers refuse to authorize a settlement because they believe that the plaintiff is lying, even though they would approve an identical settlement if the plaintiff went through their medical insurance.

For all of these reasons, it is best to go through your usual medical providers/insurance provider even though it may seem on the surface like that will reduce your recovery.