“Reasonable Value” After Pebley

By Douglas J. Petkoff, Esq.

 Nearly two years ago, in the case Pebley v. Santa Clara Organics, LLC (2018) 22 Cal.App.5t 1266, the sixth division of the Second Appellate District upended, to the chagrin of personal injury defendants, and to the joy of personal injury plaintiffs, what the former had too optimistically believed was settled law on economic damages in personal injury cases.  That law had come down from the California Supreme Court in its decision in the seminal case Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541, 566.  Under Howell, the measure of economic damages was held to be the lesser of 1) the dollar amount actually incurred, rather than billed, for a patient’s treatment, or 2) the reasonable value of that treatment.  Howell’s most vigorous offspring perhaps was Corenbaum v. Lampkin (2013) 215 Cal.App.4th 1308.  The court in Corenbaum ruled, building on the logic of Howell, that not only are medical bills not the measure of damages in personal injury cases; such bills are, in fact, inadmissible, since they are irrelevant to determining those damages.

 It was widely felt that Howell and Corenbaum had dealt a serious blow to the ability of personal injury plaintiffs to prove damages in an amount sufficient to satisfy the needs, or the desires, of such plaintiffs and of their attorneys.  (See, e.g., “Supreme Court Puts Plaintiffs Through The Hamilton Meats Grinder”, Gary Simms and Michael Danko, Plaintiff, https://www.plaintiffmagazine.com/recent-issues/item/supreme-court-puts-plaintiffs-through-the-hamilton-meats-grinder.)  In recent years, in order to avoid the harsh impact of Howell and Corenbaum, plaintiff personal injury attorneys have adverted more frequently to the use of medical providers who are outside the plaintiff’s provider network.    With the Pebley decision, this strategy seems to have been vindicated.  How did plaintiff personal injury claimants manage to carve out an apparent safe zone in which they could expect some protection from the regime of Howell?  And how safe, really, is that safe zone?

 “Reasonable Value” And The “Wide-Ranging Inquiry”

 The answer to the first question starts with the observation that Pebley decided that plaintiffs who treat outside their medical provider network are, for damages purposes, equivalent to being an uninsured plaintiff, even if the plaintiff had insurance which he might have otherwise utilized.  The consequences of being reckoned an uninsured plaintiff means, according to Pebley, that a plaintiff’s damages are evalulated under Howell’s “reasonable value” prong, rather than its “paid or incurred” prong.  The advantage of this standard for personal injury plaintiffs is that the full amount of treatment bills, barred under Howell and Corenbaum, may now be offered as evidence of damages, if such bills are offered in conjunction with other evidence such as expert billing testimony.

 In its decision holding that the measure for damages for plaintiffs who are uninsured or who are the equivalent of uninsured is to be established by recourse to the “reasonable value” prong of the Howell holding, Pebley followed the case Bermudez v. Ciolek (2015) 237 Cal.App.4th 1311.  In analyzing the applicability of the Howell rule to an uninsured plaintiff, the Bermudez court astutely noted that

 [T]he holding in Howell ultimately depended upon the "paid or incurred" prong of the test, not the "reasonable value" prong (Citations) . . . ¶Howell offered no bright line rule on how to determine "reasonable value" when uninsured plaintiffs have incurred (but not paid) medical bills.  Bermudez, 1329. 

 Because Howell left “reasonable value” undefined, Bermudez also declined to provide any clear parameters.  Instead, in the course of analyzing Howell and some of its successor cases, it announced, in the form of a rule, what is essentially a recommendation that parties engage in a broad investigation into reasonable value in lien cases: “the measure of damages for uninsured plaintiffs who have not paid their medical bills will usually turn on a wide-ranging inquiry into the reasonable value of medical services provided . . .”  Bermudez, 1330-1331.

 Pebley adopted and fully endorsed this “wide-ranging inquiry” process as a rule for determining reasonable value for “uninsured” plaintiffs.  (Pebley, 1278, 1280.)  Whereas the “paid or incurred” prong of the Howell damages holding is simple, straightforward, and results in a dollar figure to which all parties can, and usually must, reasonably stipulate, the “reasonable value” prong of Howell, utilizing Bermudez’ “wide-ranging inquiry” process, is unclear as a methodology, and yields no predictable results.  As the court in Bermudez perhaps wryly put it, “The ramifications of Howell on the proper measure of damages in a case brought by an uninsured plaintiff (who has not paid his bill) are less clear [than the measure for insured plaintiffs].”  Bermudez, 1329.

 Because of the amorphousness of the “reasonable value” prong, plaintiffs who are uninsured or deemed by Pebley to be effectively uninsured due to their choice to treat outside their insurance have welcomed the Pebley ruling as an opportunity to provide maximum, favorable evidence of their damages.  As noted above, whereas under Howell and Corenbaum, billing evidence of damages offered by insured plaintiffs is automatically excluded as irrelevant, under Pebley, such bills constitute part of a “wide-ranging inqury.”  Thus under Pebley, the full bill, banished to the realm of irrelevance under Howell and Corenbaum, is back, even though in theory the bill is not dispositve of the “reasonable value” of treatment.  In fact, according to both Bermudez (1336-1338) and Pebley (1278), such evidence alone is, by law, insufficient for the purpose of proving reasonable value.  Pebley inferred from this legal conclusion, without providing further elaboration as to the reason, that a determination of “reasonable value” requires, inter alia, expert testimony.  (Id.)  Ever since, it has been the usual practice in lien cases for each party to retain “billing experts” to opine as to the reasonable value of plaintiff’s damages.

 Reasonable Value and “Market Value”

 But there has been little guidance from the courts, as yet, as to what methodology or even basic logic should be used by experts in order to establish what “reasonable value” is.  Some experts have seized on the following statement from Bermudez in order to opine that “reasonable value” is equivalent to “market value”:

 En route to its holding, Howell observed, "The rule that medical expenses, to be recoverable, must be both incurred and reasonable [citations] applies equally to those with and without medical insurance." (Citations.) And Howell endorsed "a rule, applicable to recovery of tort damages generally, that the value of property or services is ordinarily its 'exchange value,' that is, its market value or the amount for which it could usually be exchanged." (Citations.)  Bermudez, 1329.

 There are numerous problems of both a practical and legal nature with attempting to use this theory as a basis for determining reasonable value in lien cases.  The first problem is determining which “market” one is referring to.  Some plaintiffs, believing themselves guided by the following statements in Bermudez, argue that the “lien market” is distinct from the insurance or cash paying market; and thus, that the proper indication of market value in the lien context is simply the bill:

 Howell noted "pricing of medical services is highly complex and depends, to a significant extent, on the identity of the payer. In effect, there appears to be not one market for medical services but several, with the price of services depending on the category of payer . . . ." (Citations.) . . . ¶Howell offered no bright line rule on how to determine "reasonable value" when uninsured plaintiffs have incurred (but not paid) medical bills. Ciolek is correct that the concept of market or exchange value was endorsed by Howell as the proper way to think about the "reasonable value" of medical services.  Bermudez, 1329, 1330.

 Obviously however, interpreting “market value” to mean “whatever the bill says” would resurrect the very evil which Howell attempted to do away with: an award of damages for medical care in excess of the reasonable value of such care:

 [A]s a consequence of the discrepancy in recent decades between the amount patients are typically billed by health care providers and the lower amounts usually paid in satisfaction of the charges (whether by a health insurer or otherwise), controversy has arisen as to how to measure the reasonable costs of medical care in a variety of factual scenarios. Citing the collateral source rule, some plaintiffs suggested they should be entitled to recover the reasonable costs of medical care, even if that dollar value exceeded the amount actually paid in exchange for the medical services.

 Our Supreme Court rejected this contention: "[A]n injured plaintiff whose medical expenses are paid through private insurance may recover as economic damages no more than the amounts paid by the plaintiff or his or her insurer for the medical services received or still owing at the time of trial." (Citations.) In other words, "a plaintiff may recover as economic damages no more than the reasonable value of the medical services received and is not entitled to recover the reasonable value if his or her actual loss was less." (Citations; see also Corenbaum v. Lampkin (2013) 215 Cal.App.4th 1308, 1325-1326 (Corenbaum) ["Damages for past medical expenses are limited to the lesser of (1) the amount paid or incurred for past medical expenses and (2) the reasonable value of the services"].)  Bermudez, 1328-1329.

 It is altogether unlikely that Howell intended that the evil it vanquished under its first prong should nevertheless be tolerated and encouraged to flourish under its second prong.

 Moreover, as Bermudez makes clear, interpreting “market value” to mean “whatever the bill says” is altogether untenable as a matter of law if the bill alone is the evidence: “a plaintiff who relies solely on evidence of unpaid medical charges will not meet his burden of proving the reasonable value of medical damages with substantial evidence.”  Bermudez, 1335.

 Is There A “Lien Market”?

 Although Howell endorsed “market or exchange value” as the way to think about “reasonable value,” Howell simultaneously recognized the difficulty created by its holding: “how a market value other than that produced by negotiation between the insurer and the provider could be identified is unclear”.  Howell, 562.  “Unclear” is a succinct summary of the problems with determining reasonable value by reference to market value in a lien context.  The difficulty in determining “market value” outside of negotiations is due in part to the nature of markets.  A market consists of buyers and sellers freely negotiating the value of a product or service.  A generally agreed upon price between sellers and buyers can therefore be reasonably considered to be the reasonable value of that product in a particular marketplace.  In lien cases, however, the process by which treaters are paid for their lien bills bears very little resemblance to a market.  In lien cases, the treater sets a price, and then another person—the defendant--who is not the person who has agreed to be treated--settles because of the threat of trial, or pays a judgment determined by jury assumed [in the case of settlement, without any direct evidence other than the settlement itself] to constitute the “reasonable value” of the services.  If it’s arguable, albeit a large stretch, that the amount of a settlement might be considered to be established by a species of “negotiation” between a defendant who, albeit unwillingly, “requested” the services from the treater on behalf of the plaintiff, by virtue of defendant’s tort and therefore, that such settlements are evidence of the “reasonable value” of plaintiff’s treatment, it’s nevertheless clear that the amount of any judgment was certainly not established in a negotiation.  The amount of a judgment is established by a legal order.  Thus, payments for charges in lien cases cannot fairly, or least not readily, be charcterized as being an example of a “market or exchange value.” If not, they cannot constitute a “reasonable value” under Howell or Bermudez.

 Thus, Howell and Bermudez have created a conundrum for determining “reasonable value” in lien cases: they have endorsed the idea of determining “reasonable value” by recommending that this value be determined by reference to a “market exchange value” in lien cases where no market exists.

 Problems With “Lien Market” Data

 It’s not only that the idea of a “lien marketplace” fails on the level of theory.  Even if there were such a thing as a “lien marketplace”, one would still have to overcome the initial hurdle of having access to payment and charge data in that marketplace.  No such data exists.  Unlike charges, and sometimes payments, made in the insurance and Medicare context, payments received for lien cases are not reported or aggregated anywhere.  An expert attempting to testify as to the customary value in general of treatment provided in lien cases would therefore have to do so without access to any data, since there are no existing databases containing the aggregate of payments in lien cases to which an expert might refer.  Since there is no data about lien payments, there is no basis upon which to offer an opinion about customary payments which might shed light on the reasonable value of a payment in a particular instance.  Thus, on a practical level, there is no means available for an expert to provide an opinion about the reasonable value of services in a hypothetical “lien marketplace”, if the expert’s methodology and inquiry is limited to data from that “marketplace.”

 If nevertheless some sort of data showing charges and payments in lien cases could be obtained; and, if an expert were to use such data to “reverse-engineer” reasonable value by aggregating a substantial number of representative payments in lien cases within a particular geographical area which ended in settlement or judgment; and, if the expert were then to utilize a mean or median payment as evidence of the “reasonable value” of those treatments for that area; his opinion might, in theory, shed some light on the “reasonable value” of treatment for that geographical area.  However, how well it did so would depend on the type of available data.  For instance, he would almost certainly run into the problem that neither judgments nor settlements made in lien cases typically break down economic damages into component parts so that each treatment’s value is clearly indicated.  [E.g.: “Settlement/judgment is for $1,000,000, of which $700,000 dollars represents noneconomic damages; $1,500 is the value of the cost of x-rays; $600 is the value of preop; $1,200.00 is the value of anasthesia; $1,400 is for the physician assistant’s work during the discectomy; etc.”]  Additionally problematic in the case of settlements is that they most often neglect even to distinguish between noneconomic and economic damages.  The failure to break down settlements and judgments by treatment, and settlements by category of damages, leads to the impossibility of determining which portion of any negotiated settlement or judgment applies to one particular treatment rather than another, or to economic or noneconomic damages.  This lack of clarity about what the judgment or settlement amount represents means that any determination of “reasonable value” for particular charges in particular cases would be extremely indefinite.

 “Market-Value” By Proxy

 In response to the problem of the complete lack of public, reliable data upon which to base any opinion about reasonable value in lien cases, some experts have been known to theorize that the data from the insurance and Medicare market can and should be used as a proxy source and applied--perhaps with modifications to address issues such as the delay in payment which lien treaters are generally obliged to endure--as an essentially wholesale representative of “reasonable value” in the lien “marketplace.”  Since the use of such methods generally results in figures far below the amount charged by lien treaters, these methods are generally favored by defendants, and disfavored by plaintiffs.

 Since such methods do not rely on any access to data from actual lien cases [since, as noted, no such data exists] regarding what actually happens to liens [are they paid?  How often?  How much?]; and in consequence, they do not directly comply with the “market or exchange value” standard which, according to Bermudez, constitutes an effective measure of “reasonable value” in lien cases [where, as noted, the idea of “marketplace” is, at the least, highly problematic], one would imagine that courts would reject the attempt to indirectly determine reasonable value in lien cases by using insurance and cash payment cases as a proxy.  Nevertheless, some courts have upheld the use of such methods as being helpful to the trier of fact in determining reasonable value.  (See, e.g., Stokes v. Muschinske (2019) 34 Cal.App.5th 45.)

 A Third Way: How Treaters Treat In Particular Cases

 Because of the problems with determining reasonable value based on an aggregation of market transactions, whether hypothetically direct [for lien cases], or indirect [using non-lien cases as a proxy], there is a need for a method that will better demonstrate the reasonable value of treatment in lien cases.  One alternative possibility is to attempt to find how treaters in particular cases are actually re-imbursed for their treatments.  This methodology poses some difficulties, but offers some promise as well.  It also appears to be supported by Pebley itself.

 Treaters have the actual records showing how much they actually receive for their treatments in lien cases.  Even though these payments are not received as part of a free market transaction, they would nevertheless tend to shed light on the question of whether bills alone are indicative of, or are instead unsupportive of, the “reasonable value” of treatment.  This is so because disparities between charge and payment, or the lack thereof, would, in reason, substantially either undermine or support claims that the charge constitutes a “reasonable value” for the treatment.  Such an approach was perhaps indirectly suggested in Pebley when the court observed: “On cross-examination, Dr. Alexander testified there is an expectation that a private pay party with a large bill will pay the bill.  Pebley has not paid his bill, but Dr. Alexander expects it will be paid. He conceded he does not always get paid 100% of his bills, but stated he does not routinely discount them.”  Pebley, 1279.  In other words, if Dr. Alexander did, in fact, “routinely discount” his bills, that fact, and the amount of discounts generally, might be relevant to determining, under the “wide-ranging inquiry” standard, the reasonable value of Dr. Alexander’s treatment, since his bill couldn’t reasonably be said to constitute the reasonable value when it doesn’t represent the amount he generally receives for treatment, or bear a significant relationship to the amount he receives for treatment.  Inquiry into the actual payments received by treaters, therefore, might provide information which a reviewing court might consider relevant on the question of “reasonable value.”

 Further support for the idea that such a method is within the scope of Pebley’s interpretation of the “wide-ranging inquiry” rule for determining reasonable value is found in Pebley’s approval of the use of the treater’s actual experience in treating and billing patients:

 It is apparent from the record that both surgeons “were qualified to provide expert opinions concerning the reasonable value of the medical costs at issue. [Their] opinion testimony was based in part on the medical costs incurred by [Pebley] and in part on other factors considered by the experts, including their own experiences treating patients. This was not purely speculative evidence without any basis in the real world . . .”  Pebley, 1280.

 Note that in this context, the court in Pebley makes no reference of any kind to market value or aggregated market exchange rates for the purpose of determining “reasonable value”, despite the fact that it has purportedly adopted the rule and logic of Bermudez.  It appears that, despite its limited lip service to the “marketplace” for a means of determining reasonable value (Pebley, 1275), the Pebley court was in fact looking at the particular history of transactions of treaters in the case as evidence of “reasonable value.”  To call this particular history a “marketplace” would be a highly idiosyncratic use of that word, to say the least.  In fact, the Pebley ruling provided that such essentially non-market evidence as a single treating doctor’s personal testimony regarding what he typically gets paid should be used to help determine reasonable value.  This approach is consistent with Pebley’s professed agnosticism on the usefulness and necessity of “market value” for determining reasonable value:

 As defendants point out, both surgeons emphasized the reasonable cost of the medical services rather than their reasonable value, market value or exchange rate value. The applicable jury instructions, however, refer to "cost" instead of any type of "value." The trial court instructed the jury with CACI No. 3903A, which states: "To recover damages for past medical expenses, David Pebley must prove the reasonable cost of reasonably necessary medical care that he has received." (Italics added.) It further states: "To recover damages for future medical expenses, David Pebley must prove the reasonable cost of reasonably necessary medical care that he is reasonably certain to need in the future." fn. 3 (Italics added.) Thus, as far as the jury was concerned, it was Pebley's burden to prove the "reasonable cost" of past and future medical expenses. The surgeons' testimony was consistent with CACI No. 3903A and, in the absence of an objection to the instruction, it was appropriate for them to testify regarding the reasonable cost of reasonably necessary medical care that Pebley has received and is expected to receive in the future.  Pebley, 1279.

 Thus, so far as Pebley is concerned, and in contrast to Bermudez, the necessity of “market value” to determining reasonable value is still undecided.

 Pebley’s decision to permit treater and expert evidence regarding amounts of payment typically received in a particular case by a particular treater to determine reasonable value seems well-suited to shedding light on the original problem that motivated Howell in the first place: the injustice done to defendants by the failure to take account of the discrepancy—sometimes enormous--between billed amounts, and amounts actually paid by plaintiffs and/or received by providers in satisfaction of those bills, in determining a plaintiff’s actual economic damages under the law.

 Discovery Of Particular Payments

 Defendants wishing to combat damages claims by showing how treaters in particular cases are actually reimbursed need to obtain evidence that shows or tends to show that the treater does not, in fact, usually receive the full amount of the bill from his patients.  The source of such evidence will most likely be the treater, or whoever handles bills for the treater.  Such evidence should be sought during the discovery process through well-tailored document subpoenas and PMK subpoenas of treaters, and document production requests from any treaters who are also retained as experts by the plaintiff.

 Anything that would tend to show that the treater does not, in fact, usually get paid the value of his bill, would tend in reason to show that the bill does not represent the reasonable value of treatment.  Evidence of this kind would typically include both itemized and aggregated payment amounts received for particular services; and both itemized and aggregated charges for particular services.  From each treater, this evidence should be obtained from lien cases, cash patients, and insurance patients, so that lien cases may be viewed in comparison to other types of cases.  The type of case or patient must be clearly identified in the documents obtained, or at least a clear distinction between lien and non-lien cases must be made, so that comparisons with lien cases to other cases are possible.

 Since the revelation of such information may make it impossible for a treater to claim that he usually gets paid the full amount of his bill, or that he expects to be fully paid, subpoenas and document requests of this kind can be expected to elicit strong opposition.  Defendants may have to endure numerous motions to quash and requests for protective orders from plaintiffs and treaters, and will have to rouse themselves to file numerous motions to compel, in order to obtain this information.  Since the alternative is to allow self-serving trial testimony from treaters, like that of Dr. Alexander in Pebley, who claim that they expect that their patients will pay their bills in full, and that they do not routinely discount their bills, to go unrebutted, filing and defending against such discovery motions is the price that defendants will have to pay until perhaps the Supreme Court crafts a formula for determining damages under its second Howell prong which is as mathematically elegant as its method for determining damages under the first Howell prong.