THE SWORD OF NISHIHAMA

By: Matthew J. Hunter, Esq. & Timothy J. Grant
Fredrickson, Mazeika & Grant, LLP

   Nishihama v. Superior Court (2001) 93 Cal.App.4th 298 and Hanif v. Superior Court (1988) 200 Cal.App.3d 635, stand for the proposition that in a personal injury claim, when the evidence shows that a discounted amount has been paid or incurred for healthcare services, regardless of whether the amount was paid directly by the plaintiff or by a public or private health insurance carrier, that sum certain is the maximum amount the plaintiff may recover as special damages. The end result is that if the proper groundwork is laid by the defense, past medical expenses awardable as special damages in personal injury cases may be limited to the sharply discounted amounts (oftentimes as much as 75%) actually paid by the plaintiff’s medical insurance.

   Expansion of the Doctrine. Although the effect of this Nishihama credit is well known, what remains unknown is the extent the defense may extend the Nishihama decision and use its rationale to further limit plaintiff’s ultimate recovery. In an effort to allow the jury to view general damages from the “actually paid” medical expenses viewpoint, the goal for the aggressive defense counsel is to try to get the lower number of “actually paid” medical bills into evidence (a practice readily allowed by statute in medical malpractice cases [see, Code of Civil Procedure § 3333.1). It is most likely wishful thinking to believe that even a novice plaintiff’s counsel would not object to such proffered evidence under the collateral source rule. However, if such evidence of “actually paid” medical expenses was allowed by the trial judge, it not only would result in a lower award for special damages, but also a potentially lower general damages award because of the so-called “multiplier rule” (the unwritten “rule of thumb” under which the amount of general damages is set by simply multiplying the amount of medical specials by a low of three to a high of seven times).

   History of the Doctrine. In Hanif, plaintiff’s medical expenses had been fully paid by MediCal, albeit with significant discounts from the total amount billed. Although the total amount of medical bills was put into evidence by plaintiff and awarded by the jury, the trial court imposed a post-judgment credit, the effect of which was that plaintiff only recovered past medical expenses in the amount that actually had been paid by MediCal. Hanif, supra, 200 Cal.App.3d at 644.

   In Nishihama, plaintiff argued against extending the Hanif holding to the area of private insurance, arguing that for public policy reasons the credit should be limited solely to government insurance cases. The court disagreed, however, and extended Hanif to cover the situation where a plaintiff’s medical expenses had been discounted and paid by private insurance carriers. The end result in Nishihama was a post-verdict credit, reducing plaintiff’s special damages awarded for past medical expenses to the substantially discounted amount that actually had been paid by plaintiff’s medical insurer. Nishihama, supra, 93 Cal.App.4th at 308.

   Yet, as with most legal issues in our day, Nishihama is not likely the final word on the subject. In Olszewski v. Scripps Health (2003) 30 Cal.4th 798, the California Supreme Court upheld the Hanif credit in the government insurance context, but urged the legislature to take corrective action to adjust what the court viewed as a windfall for third party tortfeasors. Olszewski involved the “balance billing” situation under which a health care provider accepts payment from a heath care insurer but asserts a lien against any third party recovery by the patient/plaintiff to recoup the amount actually billed for services. In the Fourth District, the court in McMeans v. Scripps Health (2002) 123 Cal.Rptr.2d 143, (review granted) rejected “balance billing” in the context of payments made by private insurance, but as noted, the California Supreme Court has granted review. On the other hand, the Fifth District, in Swanson v. St. John’s Regional Medical Center (2002) 97 Cal.App.4th 245 (review denied), previously upheld the practice of “balance billing.” Also, this “balance billing” practice is not allowed in the case of plaintiffs covered by HMOs, as the maximum lien the health care provider or insurer can assert is the amount paid for services. (see, Cal. Civ. Code §3040; Swanson v. St. John's Regional Medical Center (2002) 97 Cal. App. 4th 245, 251). When, how, or if the court will rule in the McMeans case is anyone’s guess, but one would think that ruling is long overdue.

   Discovery Issues Presented. Due to protracted discovery issues that typically arise in personal injury cases, it should be the goal of the defense attorney to identify and act on these billing issues from the very beginning of a case, rather than waiting until the time of trial preparation to focus on the bottom line number.

   In order to timely and effectively marshal evidence of the “actually paid” amount, of medical expenses, one must identify all medical providers and all insurance coverage for a particular plaintiff as early as possible. That means sending out interrogatories almost contemporaneously with the answer and relentlessly following up on the piecemeal information that typically is provided. Once the plaintiff’s answers trickle in, merely relying on medical billing numbers provided in discovery responses is problematic. Instead, once medical providers have been identified, one should immediately subpoena the billing files of the identified health care providers and medical insurance carriers. More likely than not, the records directly obtained from these providers will include new/different billing and payment information from that which was provided in discovery responses. During this process, it also is critical to identify the custodians of record (COR) for the given medical provider and insurance carriers needed to properly authenticate and interpret the billing records obtained. In a troublesome case, it may also take the threat or actual taking of a deposition of a COR in order to overcome HPPAA roadblocks and the like and to nail down this billing issue. Should the claim go beyond the mediation stage, already having these custodians identified will save valuable time at the trial preparation stage.

   Use of the Doctrine During Mediation/Pre-Trial. While the plaintiff’s bar undoubtedly is aware of the effect of the Nishihama credit, many times plaintiffs’s counsel does not take it upon themselves to determine the amount of medical specials actually paid. Because of the leveling effect of the Nishihama credit, at a mediation session or a MSC it would be beneficial to have hard proof available of the “actually paid” amount of medical expenses (as opposed to the inflated “billed” amount typically used by plaintiff). Consequently, it is good practice in most cases to provide plaintiff’s counsel with copies of supporting documents well in advance of any settlement hearing. Otherwise, waiting until the mediation session or the MSC to address the effect of the Nishihama credit on the value of the case is likely to arouse plaintiff’s suspicions and be less conducive to any meaningful settlement discussions.

   Defense counsel hopefully also will know well in advance of the trial date how the assigned trial judge views this particular issue. The simplest way is to make inquiries with other defense counsel regarding the particular philosophy the trial judge has for this topic. Also, defense counsel should let the trial judge know at the trial readiness conference, or at a status conference, that the issue exists, and inquire as to how the court proposes to deal with it.

   Use of the Doctrine at Trial. At the trial stage, the question posed is how evidence of the lower amount of bills actually paid can get beyond a collateral source objection. The collateral source doctrine provides that when injured party receives compensation for injuries from a source independent of the alleged tortfeaser, the amount of such compensation is not offset against the damage obligation of the tortfeaser, and is therefore irrelevant. People v. Hamilton (2003) 114 Cal.App.4th 932, 944. This doctrine is not so broad, however, that evidence of insurance cannot be introduced for some other purpose. For example, in Arambula v. Wells (1999) 72 Cal.App.4th 1006, while not directly dealing with the issue being addressed here, the court ruled that the existence of a collateral source is not entirely barred during the course of trial if there is a "persuasive showing" that such evidence is of "substantial probative value" for purposes other than reducing damages. Id., at 1015. In the context of Nishihama, insurance evidence is not being offered to reduce damages; it is being offered to show what the actual damages are. In other words, the evidence is not excludable based on collateral source arguments.

   Defense counsel definitely should plan on addressing these special damages issues at the in limine stage. One approach is to deal with the issue in two separate in limine motions. The first motion should seek to limit plaintiff’s evidence of past medical expenses solely to those amounts “actually paid” by the insurance company or otherwise, and to bar evidence of the higher billed amounts. The argument in that case would be evidence of the non-recoverable amount of gross billings is irrelevant, prejudicial, and likely to confuse the jury. Secondly, should plaintiff’s counsel be unwilling to stipulate to the actual amounts paid, then another pre-trial motion should seek leave of court to offer affirmative evidence at trial, via testimony from the custodian of records of various healthcare providers, regarding the amount of medical expenses “actually paid.” These motions may seem redundant, but instead address the two distinct legal issues presented of collateral source and the amount of damages allowable by Nishihama.

   These efforts could very well result in a stipulation from plaintiff regarding the amount of actual expenditures. Such a stipulation should be welcomed because it will save the time and expense of having to put on the evidence necessary to prove the amount of “actually paid” damages. Further, defense counsel will have accomplished the goal of getting the lesser amount before the jury, with the consequential effect of limiting past medical expenses as well as the amount of general damages.

   If, however, for some reason the jury awards more in past medical specials than was actually paid by the insurance company, under the Nishihama doctrine, the trial judge must reduce this amount, post verdict, to reflect the actual amount paid. Therefore, if this aberrant result occurs, defense counsel should file a post-trial motion for remittitur so the judgment amount complies with Nishihama credit.

   So what’s bottom line? The bottom line is that the defense attorney can consistently get better results, whether through settlement or trial, if they identify the exact amount of recovery plaintiff is entitled too and then tactically use this information.
Until the California Supreme Court gives the final say, this matter is not settled. If the Supreme Court upholds “balance billing,” then the entire Nishihama doctrine is likely to disappear because plaintiff’s counsel will argue that their clients may actually become liable for the entire amount billed, rendering moot the issue of the credit. Stay tuned for the final word from the Supreme Court.