Issue By: Thomas J. LoSavio

Cuevas v. Contra Costa County

First Appellate District, Division One (April 27, 2017)

In an ordinary personal injury lawsuit, a defendant may not introduce evidence of amounts the plaintiff received from insurance covering the injuries. This rule is called the “collateral source” rule. The public policy behind the rule is that a plaintiff who has had the foresight to have paid insurance premiums for medical benefits should not be punished for that foresight and thrift, even if it means that, to some extent, the plaintiff might recover for the same damages twice, once from the insurance carrier and once from the defendant. The collateral source rule is not available to plaintiffs in cases where the injuries are caused by medical malpractice. In medical malpractice cases, evidence of insurance payments may be considered by the jury to reduce the damages to plaintiff. The reason for this different treatment is because the California Legislature responded to what it perceived as a crisis in the medical industry with the passage of the Medical Injury Compensation Reform Act (MICRA). MICRA was designed to curtail unwarranted insurance premium increases by authorizing alternative insurance coverage programs and by establishing new procedures to review substantial rate increases and to reduce the cost and to increase the efficiency of medical malpractice litigation by revising a number of legal rules applicable to such litigation.

This case considered whether future payments to a medical malpractice plaintiff under the Affordable Care Act (ACA) were properly excluded on the ground that the future of the ACA was speculative and that MICRA only related to insurance payments for past and not future benefits. The appellate court reversed the trial court and concluded the future ACA benefits were erroneously excluded, rejecting the trial court’s reasoning that MICRA only related to insurance payments for past benefits, and that the future of the ACA was speculative. Relying on the seminal cases of Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541 (Howell) and Corenbaum v. Lampkin (2013) 215 Cal.App.4th 1308 (Corenbaum), the appellate court also concluded that plaintiff’s recovery should be limited to the amount he proves is likely to be paid to providers for his future medical care, not the amount his providers are likely to bill.

Finally, the appellate court rejected the defense contention that the value of the free services that plaintiff is entitled to receive from the regional center and school district should not have been excluded from the jury’s consideration, finding that MICRA only designated certain, enumerated payments as properly considered, not simply all government payments.

This case began when plaintiff suffered irreversible brain damage in utero while his mother’s pregnancy was being managed by a physician employed by defendant. Plaintiff is the surviving twin of a monochorionic-diamniotic pregnancy—a condition whereby identical twins share a placenta, but have separate amniotic sacs. When plaintiff’s mother reported for an appointment at 37 weeks and six days pregnant, only one fetal heartbeat could be detected. She was transferred to a hospital by ambulance, where the twins were delivered via caesarian section. Plaintiff’s twin had died, and plaintiff had suffered a hypoxic brain injury. As a result, plaintiff has a very low verbal IQ and will never be a functional reader. He also has serious language communication difficulties, significant behavioral problems, and has been diagnosed with cerebral palsy. Though he has severe developmental delay, he is sociable. He is toilet trained and can walk, run, and feed himself. In the future, he will be able to feed, dress, and bathe himself. However, he will be dependent on others for his personal care and safety for the rest of his life.

On April 19, 2010, plaintiff, through his guardian ad litem, filed a first amended complaint (FAC) against Contra Costa County Health Services and 13 other defendant health care providers and medical centers. The FAC alleges two causes of action: medical malpractice as to plaintiff and negligent infliction of emotional distress as to his mother. Plaintiff’s theory at trial was that he sustained his injury because the physician breached the applicable standard of care by failing to schedule his delivery prior to 37 weeks’ gestation. The case was tried to a jury, which found in plaintiff’s favor on liability. Defendant did not contest this finding on appeal. The jury awarded him $9,577,000 as the present cash value of his future medical and rehabilitation care expenses.

During discovery, plaintiff disclosed a life care plan prepared by Jan Roughan, who provided her opinion as to the kind of medical and rehabilitative care he will need for the rest of his life, along with the projected costs for each specific care item. Her plan was based on the recommendations of medical specialists who testified on plaintiff’s behalf. As to future medical costs, the plan does not account for service discounts associated with Medi-Cal, even though plaintiff is currently receiving Medi-Cal benefits. Nor does it reflect negotiated discounts that would potentially be available under insurance procured through the ACA. Instead, Roughan determined future costs for plaintiff’s medical care by referencing a national database that reflects the average charges billed for each type of service.

Defendant’s life care planner, Linda Olzack, prepared life care plans based on services recommended by a defense pediatric neurologist. In contrast to Roughan, Olzack’s plans reflect three alternate cost scenarios, including one in which plaintiff would continue to be covered by Medi-Cal, one in which he would procure private insurance under the ACA, and one in which he would pay for his expenses out of pocket. With respect to the private pay scenario, Olzack did not rely on amounts billed by healthcare providers in calculating future medical expenses. Instead, she contacted local health care providers and asked them how much individuals without insurance are required to pay. These rates typically are less than what providers would state on a bill. Olzack’s alternative plans reflect the wide variations that presently exist in medical charging practices. Her Medi-Cal life care plan reflects reimbursement rates that appear to be substantially lower than the rates paid by persons without insurance. For example, one category of expenses reflects a more than 60 percent difference between the private pay rate and the Medi-Cal rate. Within her plans, she also took into consideration the free benefits that plaintiff is currently entitled to receive from the regional center and public school system. Olzack also prepared a report comparing the costs for the services itemized in Roughan’s plan with the Medi-Cal payment rate for the same goods and services, revealing that Roughan’s costs were substantially higher. For example, the cost for a wide variety of physician visits listed in Roughan’s plan were four to six times higher than the corresponding Medi-Cal rates.

After hearing argument, the trial court ruled that defendant could not present as a collateral-source offset any evidence concerning publicly funded benefits available through regional centers and the public school system. Relying on Civil Code section 3333.1 within MICRA, it also ruled defendant could not introduce any evidence of Medi-Cal benefits, nor could it introduce evidence of ACA insurance benefits. With respect to Medi-Cal, the court ruled that Medi-Cal is not subject to MICRA’s exception to the collateral source rule. With respect to the ACA, the court also reasoned: “I believe that there is no reasonable certainty that that benefit will be in place, and that’s something that—you have to cross that barrier in order to be considered as something that should be presented to the jury for factual consideration.”

The trial court also ruled that it would allow evidence of Roughan’s reliance on the national database to project plaintiff’s medical costs into the future “because it’s not relying on past billed amounts.” The court also indicated it would permit Olzack to testify that she had based her own calculations on the lower amounts that are accepted by healthcare providers under certain circumstances (the private pay scenario). However, defendant would not be allowed to testify that future billed amounts do not reflect the amounts that will actually be accepted by the providers.

Roughan’s life care plan was admitted in evidence during her testimony. Subsequently, Olzack was permitted to testify about her private-pay life care plan, the only version of her three plans that the trial court allowed into evidence.

Based on a projected remaining life expectancy of 74 years, plaintiff’s economist calculated the total value of his future care expenses under Roughan’s life care plan to be $285 million, with a present value of nearly $29 million. In contrast, defendant’s economist took the rates to which Olzack was permitted to testify and concluded that the present value of plaintiff’s future service needs totaled somewhere between $3,233,670 and $3,340,222. Defendant claims these estimates would have been significantly lower if Olzack had been able to factor into her analysis the free benefits plaintiff receives from the regional center and the school system, as well as discounted medical care rates that would apply under Medi-Cal or a private insurance policy.

The jury found in favor of plaintiff and awarded $100 million for future medical, hospital, surgical, and rehabilitation care expenses, which it reduced to $9,577,000 in present cash value. The total represents approximately one-third of what plaintiff had sought, and about three times the total in the private pay version of Olzack’s plan that the trial court admitted into evidence.

The appellate court first determined what the law permits and requires with respect to the recovery of future medical damages under MICRA. A medical malpractice defendant may introduce evidence of “any amount payable as a benefit to the plaintiff as a result of the personal injury pursuant to the United States Social Security Act, any state or federal income disability or worker’s compensation act, any health, sickness or income-disability insurance, accident insurance that provides health benefits or income-disability coverage, and any contract or agreement of any group, organization, partnership, or corporation to provide, pay for, or reimburse the cost of medical, hospital, dental, or other health care services.” If the medical malpractice defendant introduces evidence of the plaintiff’s collateral source benefits, the plaintiff may introduce evidence of any payments made to obtain these benefits. This section also provides that “[n]o source of collateral benefits introduced pursuant to subdivision (a) shall recover any amount against the plaintiff nor shall it be subrogated to the rights of the plaintiff against a defendant.” Under this section, the jury is informed of collateral source benefits and may elect not to award damages that duplicate those benefits. Courts have held that section 3333.1 does not apply to payments made on behalf of an injured party by Medi-Cal because applying section 3333.1 to Medicaid payments for medical services would create a direct conflict with provisions of federal law that require states to seek reimbursement of Medicaid payments from third party tortfeasors. Therefore, the collateral source rule continues to apply in medical malpractice cases as to Medi-Cal payments.

The trial court ruled that section 3333.1 does not allow the introduction of evidence regarding future health insurance benefits—only past benefits. Defendant asserts that section 3333.1 allows the introduction of future as well as past collateral source medical benefits, thereby allowing the jury to decide whether to reduce a plaintiff’s damages award for future medical expenses. The issue is one of statutory interpretation. In interpreting statutes, courts consider first the words of a statute, as the most reliable indicator of legislative intent.

Words must be construed in context, and statutes must be harmonized, both internally and with each other, to the extent possible. If, however, the statutory language may reasonably be given more than one interpretation, courts may consider various extrinsic aids, including the purpose of the statute, the evils to be remedied, the legislative history, public policy, and the statutory scheme encompassing the statute.

MICRA section 3333.1 provides, in relevant part: “In the event the defendant so elects . . …he may introduce evidence of any amount payable as a benefit to the plaintiff as a result of the personal injury pursuant to the United States Social Security Act, any state or federal income disability or worker’s compensation act, any health, sickness or income-disability insurance, accident insurance that provides health benefits or income- disability coverage, and any contract or agreement of any group, organization, partnership, or corporation to provide, pay for, or reimburse the cost of medical, hospital, dental, or other health care services.

Defendant argued that the statute’s use of the term “amount payable,” instead of “amount paid,” contemplates that evidence of future benefits should be admissible as well.” The appellate court agreed. While the meaning of “paid” as used in subdivision (a) of this section is clear, in that it references that amount which a plaintiff has already paid to obtain insurance benefits, the court agreed with defendant that “amount payable” is ambiguous insofar as it could apply to amounts that will be payable in the future as well as to amounts that were payable in the past. The court noted that an argument can be made that “amount payable” should be restricted to past medical expenses because the statute only includes an offset for those premiums that a plaintiff has already “paid or contributed.” However, section 3333.1 does not explicitly limit the presentation of a defendant’s evidence to past benefits.

After considering past case law, the purpose and public policy of MICRA, and the legislative history of MICRA and its predecessor bills, the court concluded section 3333.1 permits the introduction of evidence regarding future as well as past medical benefits. The trial court thus erred in relying on this section to bar defendant from introducing evidence of future benefits.

Defendant also asserted the trial court erred independent of section 3333.1 by relying on the collateral source rule to exclude evidence of the ACA and the amounts that healthcare providers typically accept as payment for their services. Defendant relied on Howell for the proposition that negotiated payment amounts and “the ACA’s guaranteed issue and renewal requirements are highly probative because they are ‘of substantial probative value’ in determining the reasonable value of plaintiff’s medical services.” The court found the defendant’s reasoning to be persuasive.

Howell addressed whether a plaintiff could recover from a tortfeasor economic damages for amounts billed by a medical provider in excess of the discounted sum the provider agreed to accept as full payment for past medical services pursuant to a preexisting contract with the plaintiff’s health insurance carrier. Howell ultimately concluded the plaintiff was limited to recovering the amount actually paid on his behalf because the billed amounts did not represent an economic loss the plaintiff incurred. The Howell court explained it was not abrogating or modifying the collateral source rule, it simply found the rule inapplicable: “The rule . . . has no bearing on amounts that were included in a provider’s bill but for which the plaintiff never incurred liability because the provider, by prior agreement, accepted a lesser amount as full payment. Such sums are not damages the plaintiff would otherwise have collected from the defendant. They are neither paid to the providers on the plaintiff’s behalf nor paid to the plaintiff in indemnity of his or her expenses. Because they do not represent an economic loss for the plaintiff, they are not recoverable in the first instance.” Howell affirmed the vitality of the evidentiary aspect of the collateral source rule, stating evidence that “payments were made in whole or in part by an insurer remains . . . generally inadmissible.” The court declined to opine as to the relevance or admissibility of the full billed amount with respect to noneconomic damages or future medical expenses.

The appellate court in Corenbaum addressed issues left open in Howell. The court held evidence of the full amount billed for a plaintiff’s medical care is not relevant to damages for future medical care or noneconomic damages, concluding that the admission of such evidence was error. The court reasoned the trial court’s erroneous admission of such evidence was prejudicial in that case because the record “clearly demonstrate[d]” that the damages awards were based on the full amount billed and not on the lesser amount the plaintiff’s medical providers had accepted as full payment. The court reversed and remanded for a new trial limited to the issue of compensatory damages.

The appellate court here noted that a recent case from the Second Appellate District, Markow v. Rosner (2016) 3 Cal.App.5th 1027 (Markow), cites to Howell and Corenbaum, explaining: “Our Supreme Court has endorsed a market or exchange value as the proper way to think about the reasonable value of medical services. [Citation.] This applies to the calculation of future medical expenses. [Citation.] For insured plaintiffs, the reasonable market or exchange value of medical services will not be the amount billed by a medical provider or hospital, but the ‘amount paid pursuant to the reduced rate negotiated by the plaintiff’s insurance company.’ ” (Markow, at pp. 1050–1051.)

The appellate court found that this and other cases support the conclusion that the collateral source rule is not violated when a defendant is allowed to offer evidence of the market value of future medical benefits.

In a related argument, defendant further faulted the trial court for preventing it from introducing evidence of future benefits that will be available to plaintiff under the ACA based on its conclusion that it was speculative to assume the ACA will continue to exist. It is noteworthy that this case was briefed before the 2016 presidential election, the aftermath of which did place the ACA’s continued viability into question. However, in spite of recent efforts to abolish or substantially alter the ACA, as of the writing of their opinion the appellate court found that the ACA remains essentially intact.

Defendant’s expert Dawson’s declaration supported the proposition that plaintiff will be able to acquire comprehensive health care insurance going forward. In other words, it provides a defense expert assessment of the availability of insurance benefits compatible with defense health care expert Olzack’s analysis of sources to finance plaintiff’s future need satisfaction. Dawson opined that the ACA is reasonably certain to continue well into the future and that plaintiff will be able to acquire comprehensive health insurance notwithstanding his disability. Dawson reviewed Roughan’s and Olzack’s life care plans and compared them both to plaintiff’s current Medi-Cal coverage and to insurance available on the Covered California health care exchange. Dawson identified specific California insurance plans that would be available to meet many of his needs. He also explained that plaintiff could use funds held in his special needs trust to purchase private health insurance, in which case private insurance would pay first, and Medi-Cal would have a right to reimbursement from the corpus of the trust only upon his death.

The appellate court found that defendant presented evidence sufficient to support the continued viability of the ACA, as well as its application to plaintiff’s circumstances. Accordingly, the court concluded the trial court’s decision to exclude evidence of future insurance benefits that might be available under the ACA on the basis that the ACA is unlikely to continue was an abuse of discretion.

Defendant next asserted the trial court erred in excluding evidence regarding the free services that plaintiff is entitled to receive from the regional center and school district. Defendant acknowledged that the trial court concluded those benefits did not qualify as collateral sources admissible under section 3333.1, but claimed the benefits plaintiff receives are not collateral sources at all, relying on two out-of-state cases. The court found defendant’s contention not persuasive. As discussed above, the collateral source rule provides that if an injured party received 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. In enacting MICRA, the Legislature did not totally abrogate the collateral source rule. The Legislature was precise in delineating which sources were to be included in this exception to the collateral source rule. Not all payments made by the state or the federal government were included. Regional center benefits, like Medi-Cal benefits, are not paid to the disabled directly. They are paid to the providers by the Department of Developmental Services. The services rendered to plaintiff will be paid for by a regional center funded under the comprehensive statutory scheme designed to meet the needs of the developmentally disabled. Like Medi-Cal payments, regional center benefits do not fall into any category enumerated by section 3333.1. Contrary to defendant’s contention, regional centers also have subrogation rights enforceable by a lien on a client’s recovery, just as does Medi-Cal. Although the care is paid for by the State of California, the court concluded the exception under section 3333.1 is not applicable, and the general collateral source rule applies.

As to the availability of the public schools to address plaintiff’s needs, defendant was, in fact, allowed to introduce evidence of benefits he would receive at a public school. Defendant presented evidence to support its argument that plaintiff could get many of his needs met through the public school. Plaintiff offered contrary evidence. The appellate court found no error. The task of measuring such damages falls to the jury, and its resolution of disputed issues of probability and extent of harm will be affirmed if supported by substantial evidence.


In most respects the reasoning of the court is limited to cases of medical malpractice. However, the court’s reliance on the reasoning of the Markow case for the proposition that the California Supreme Court has endorsed a market or exchange value as the proper way to think about the reasonable value of medical services has implications in all personal injury cases involving evidence of future medical expenses. For insured plaintiffs, the reasonable market or exchange value of medical services will not be the amount billed by a medical provider or hospital, but the amount paid pursuant to the reduced rate negotiated by the plaintiff’s insurance company.

For a copy of the complete decision, see: Cuevas v. Contra Costa County

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