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Lien-Based Medical Treatment: How Much Should Healthcare Cost?

On Behalf of | Oct 25, 2022 | Business Litigation, Insurance

In any personal injury case, especially any serious injury case, medical expenses play a key role. The medical expenses, themselves, can be quite significant. They also frequently inform any awards for non-economic damages, such as pain and suffering. Accordingly, it is vital to understand the risks associated with lien-based medical treatment.

As the Wall Street Journal noted in 2020, the practice of lien-based treatment has benefited greatly from two California cases. Other states may treat the matter differently, but the same basic problem remains. Lien-based treatment inflates the cost of litigation.

What Is Lien-Based Treatment?

Traditionally, when people get hurt, they seek treatment from providers covered by their insurance, and they bill their insurance for the treatment. Many times, the insurance companies will reimburse the providers at rates lower than those the providers request.

With lien-based treatment, the situation is nearly reversed. The injured parties, often at an attorney’s recommendation, will seek treatment from providers outside their insurance networks. These providers will agree to receive payment for their services at some point, typically after the injured parties receive their verdicts or settlements. At the same time, these providers may take advantage of the situation to inflate their bills. The Wall Street Journal noted that lien-based providers often charge 7 to 25 times more than they would expect insurance companies to pay.

The rules for lien-based services change from state to state, but they are generally legal. Still, it is debatable whether they serve the public’s best interests. Doctors debate the matter within their own ranks, and they typically cite one main argument in its favor. The practice helps uninsured patients gain access to better care. Even so, the main beneficiaries tend to be the injury lawyers.

Howell and Pebley

States certainly don’t all follow in lockstep with California. Nonetheless, California’s courts handled the two cases that have been among the most influential in nationwide debates about lien-based treatment:

  • On its face, Howell v. Hamilton Meats & Provisions, Inc. appeared like a victory for the insurance companies because it said that plaintiffs could recover whichever was the lower amount—the actual amount paid or the “reasonable market value” of the care. In reality, it encouraged lien-based treatment because insurance companies often repay doctors at a discounted rate. With lien-based treatment, the actual amount paid does not include the discounts the insurance company negotiates but allows the plaintiff to present the doctor’s full bill. Even if the doctor bills a “reasonable market value,” that value may be significantly larger than the rates set with insurance providers.
  • In Pebley v. Santa Clara Organics, a California appellate court ruled that an injured man who saw a lien-based provider outside his network should be treated as “uninsured” for the sake of his case. This meant jurors would only see the lien-based provider’s bills. They wouldn’t see any bills that included an insurance company’s standard discounted rates, and this would make it harder for insurance companies to argue the lien-based services were overpriced.

Again, other states do not have to follow the precedents set by California’s courts, but personal injury attorneys certainly took note of the arguments and results. Moreover, California’s population and economic might made these rulings important to insurance companies. Even if the insurance companies can use different arguments elsewhere, they have to understand what was happening in California.

Countering Lien-Based Claim Inflation

Ultimately, defense attorneys and their clients want to understand how they can counter the inflationary impact of lien-based treatment. Here, their considerations and strategies (and the importance of those strategies) will change from state to state, even though some are more universal than others:

  • It matters whether states award lien-based providers their repayment before or after the injury attorneys take their cut. In Missouri, lien-based providers can only claim their share after the attorneys have received their payment, and then the providers are limited to no more than 50% of the remaining award. The result is that lien-based providers find less incentive in Missouri. On the other hand, an Illinois appellate court ruled that lien-based healthcare costs should be factored in that state before attorneys took their share. This incentivizes the practice in Illinois.
  • Many lien-based healthcare providers will sell their interests in a claim to third parties at discounted rates. These rates may be closer to the rates insurance companies would pay. In these cases, it is these financing companies who then want to see litigation continue for the full value billed.
  • Even when insurance companies can reveal insurance rates for healthcare services, they should be prepared for healthcare providers to argue that the insurance rates are not reasonable. Many providers, especially lien-based providers, will argue that insurance companies underpay them for their services. Insurance companies should be prepared to address how the market arrives at a “reasonable” value for service.
  • Lien-based doctors and other providers may testify about the need for the treatment, as well as the expense. This testimony may be tainted by the provider’s self-interest.
  • Providers who are thinking about offering lien-based services often cite the risks of litigation as a deterring factor. Many of the injury victims seeking lien-based care would be unable to pay for their treatment if they don’t receive a positive verdict or sizable settlement.

As noted earlier, many courts look at the medical costs in injury cases to determine the appropriate values for other damages. If defense attorneys do not adequately challenge the medical expenses for lien-based treatments, they can easily see those expenses multiplied and magnified in awards for pain and suffering and other non-economic damages.

As a result, defense attorneys should be prepared to challenge every wayward assertion about lien-based expenses. For example, when lien-based providers sell their liens to financing companies, attorneys might use subpoenas to learn the amounts of those transactions. Attorneys might also investigate a provider’s credentials and disciplinary records, and they can check how closely the lien-based provider paid attention to the patient’s medical record.

A Monster on the Rise

Interestingly enough, the Wall Street Journal concluded its 2020 report on lien-based treatment with a quote from Mr. Pebley, the plaintiff in the case that won so much ground for lien-based providers. He claimed to be surprised by the impact his case had had on the industry. “It seemed like it would be pretty simple,” he said. Then, thinking again, he added, “It turned into this monster.”

Pebley is right in this regard. Lien-based medical treatment has, indeed, turned into a monster. The Wall Street Journal noted that the practice had exploded out of California and into other states, especially Colorado, Florida, Georgia and Texas. Insurance companies and defense attorneys should be prepared. The practice exists. It is growing, and if defense attorneys don’t arm themselves with effective strategies, the practice is going to cost them a lot more money than it should.