The Affordable Care Act: Taking a New Approach to Damages

Caryn L. Lilling

Mauro Lilling Naparty LLP

130 Crossways Park Drive, Suite 100

Woodbury, New York 11797

T 516.487.5800

F 516.487.5811

Thomas R. Shimmel

Kitch Drutchas Wagner Valitutti & Sherbrook

One Woodward Ave, Ste 2400

Detroit, Michigan 48226

T 313.965.6954

F 131.965.7403

What is the ACA?

• The Patient Protection and Affordable Care Act (“Affordable Care Act” or

“ACA”) was adopted by Congress on March 23, 2010 and deemed

Constitutional by the United States Supreme Court in National Federation of

Independent Business v. Sebelius, 132 S. Ct. 2566 (2012)

• In its simplest terms, the ACA provides that all persons in the United States

be afforded health insurance, regardless of their health or financial situation

• The Act contains 5 essential components designed to improve access to

health care and health care insurance markets:

1) The individual mandate

2) Minimum essential benefits

3) Guaranteed issue requirement

4) The employer mandate

5) Tax credits and subsidies

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Individual Mandate

• Took effect January 1, 2014

• Requires every “applicable individual” to obtain “minimum essential coverage or pay a penalty

– Limited exceptions exist under 26 U.S.C. § 5000A(d)-(e)

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Essential Health Benefits • All qualified plans are required to provide “minimum essential coverage.” The

minimum essential coverage required must include:

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For these minimum coverage plans,

the ACA limits the annual amount of

out-of-pocket medical expenses to

the Health Savings Account limits:

– $6,350 for individuals in 2014

– Limits do not include premiums

Guaranteed Issue Requirement

• The “guaranteed issue requirement” bars insurance companies from denying

coverage to individuals with pre-existing conditions.

• It works in conjunction with the “community rating requirement,” which

prohibits insurance companies from charging higher rates to individuals based

on their medical history.

• Insurers are also prohibited from placing lifetime and annual spending limits

on the “minimum essential benefits.”

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Common Law Collateral Source Rule

• Prohibits a defendant from reducing damages the plaintiff receives in a tort

action by third-party payments received by the plaintiff

– 13 states and the District of Columbia adhere to the common law rule

– Other states have modified the rule to varying degrees

• To date, this rule has been the biggest obstacle to reducing damages for future

medical expenses for private health insurance

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Main Justifications to Date for No Offset

• Common Law

– Promotes deterrence

– Enforces fundamental principle of tort law that tortfeasors pay for the

consequences of their actions

– Defendants should not receive a windfall of lesser or no damages based on

benefits paid by a third-party

– Encourages individuals to purchase insurance

– Avoids prejudice to the plaintiff because juries can look unfavorably on a plaintiff

suing for costs already paid by a collateral source

• Modified Rules

– Burden of proof

› Will private insurance be available for duration of award?

› What level of care will be available under such a plan?

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Collateral Source Rule and the ACA

• Common Law

– The ACA undermines the evidentiary purpose of the rule, now most people will

assume a plaintiff has insurance

– The Collateral Source Rule is no longer required to encourage individuals to

purchase and maintain insurance because the ACA creates that incentive

– In the past, courts were reluctant to “reward” defendants because of plaintiff’s

foresight to purchase insurance; foresight has been replaced with legal obligation

– The common law collateral source rule was intended to prevent a windfall to the

defendant; defendant still pays the amount plaintiff actually incurs due to the

injury

• Modified Rules

– Plaintiff can now get insurance

– Insurance must cover minimum essential benefits and could cover more

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Mitigation of Damages

• The Doctrine:

– A plaintiff is not entitled to recover damages for any harm that he could have

avoided by the use of reasonable effort or expenditure after the commission of a

tort.1

– Doctrine precludes recovery of unreasonably excessive expenses incurred in

response to the tort

– Every plaintiff must take reasonable measures to minimize their damages

9 1Jones v. Malinowski, 299 Md. 257, 473 A.2d 429 (Md. 1984)

Mitigation of Damages

• Burden is on the defendant

– Plead as an affirmative defense

• Requires expert testimony1

– Which items in Life Care Plan covered by insurance

– The cost of premiums

– Projected increases in premiums

– The availability of policy throughout duration of plaintiff’s medical needs

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1Leung v. Verdugo Hills Hosp., 2013 WL 221654 (Cal. App. 2d Dist. Jan, 22, 2013) Lopez v. Sunrise One, LLC, 40 Misc. 3d 1238[A] (N.Y. Sup. Ct. Kings County 2013)

Compensatory Damages

• Plaintiff’s Burden of Proof:

– Purpose is to compensate the plaintiffs or make them whole, rather than punish

the defendant

– In context of future medical expenses, it is the cost of treatment and care that

otherwise would not have been incurred

– Future damages are reasonably certain to be sustained or to occur or to be

incurred in the future

– Future medical costs meet the medically reasonable and necessary test

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Billed v. Negotiated Rates

• Large disparities between what is billed by the medical provider

compared with what insurance carriers actually pay

• Negotiated rates

– Agreements between carriers and providers allow for discounts

– Uninsured billed higher rates - not afforded bargained-for discounts

– Historically, discrepancy between billed or standard rates and negotiated

rates could be as much as eight times higher

• “Written off” amount not considered as damages1

12

1 Howell v. Hamilton Meats & Provisions, Inc., 52 Cal. 4th 541, 562 (2011) Kastick v. U-Haul Co. of W. Mich., 740 N.Y.S.2d 167 (4th Dept. 2002)

Examples of Billed/Negotiated Differences

Nishihama v. City and County of San Francisco1

• Jury Award: $17, 168 for hospital

expenses

• Paid to hospital by Blue Cross: $3,600

as payment in full

• Court held that only the amount paid

or incurred is recoverable as

compensatory damages

• 80% reduction on amount sought by

Plaintiff

Pexa v. Auto Owners Ins. Co.2

• Total medical bills: $41,544.00

• Amount paid by insurer & Medicare:

$15,950.29

• Collateral source rule not implicated

because no third party paid difference in

billed rates and Medicare rates

• 62% reduction on amount sought by

Plaintiff

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1 93 Cal. App. 4th 298, 306 (Cal. App. 1st Dist. 2001) 2 686 N.W.2d 150, 156 (Iowa 2004)

Billed / Negotiated Differences

Service Date Billed Amount Paid Amount Difference Savings

9/2013 $314.00 $72.07 $241.93 77.05%

8/2013 $120.00 $93.01 $26.99 22.49%

8/2013 $142.52 $71.26 $71.26 50.00%

8/2013 $935.00 $470.71 $464.29 49.66%

7/2013 $1,050.00 $696.00 $354.00 33.71%

7/2013 $358.00 $28.32 $329.68 92.09%

7/2013 $1,455.00 $546.34 $908.66 62.45%

6/2013 $87.00 $19.93 $67.07 77.09%

6/2013 $1,822.00 $557.90 $1264.10 69.38%

6/2013 $85.00 $32.59 $52.41 61.66%

6/2013 $1,350.00 $864.00 $486.00 36.00%

6/2013 $1,245.00 $468.34 $776.66 62.38%

TOTAL: $8,963.52 $3,920.47 $5,043.05 56.26%

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Billed v. Negotiated Rates

• Prior to the ACA, less than 5% of patients, nationally, paid a provider’s billed

rates

• Now under the ACA, that number will go down even further

• Therefore, defendants can argue that courts should find:

– the collateral source rule does not apply because the difference between the billed

and negotiated rates does not reflect an amount paid on the plaintiff’s behalf

– when awarding compensatory damages, the plaintiff should only be able to

recover for amounts paid or that could be owed

– even if the collateral source rule applies, the amount of the offset should include

the amounts actually paid by a third party on the plaintiff’s behalf

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Tell a Different Story

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• Common Wisdom

– If you discuss damages or put up numbers you condemn

your chance of success on the case

– Spending time on damages undermines the standard of care

or causation defenses

Addressing Damages

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• Before damages can be properly defended, they must

be accurately defined

• Assessment of future medical damages is key to

understanding case exposure

• Underestimating future damages can lead to harmful

exposure in personal injury litigation

• The proper strategy and implementation of available

tools can help define damages so that they may be

defended efficiently and effectively

Defining Damages

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• By law the burden of proof is on the plaintiffs

• Defendants must ensure Plaintiffs are held to this

burden by showing:

– Future damages are reasonably certain to be sustained or

occur in the future

– Plaintiffs meet their burden of establishing that future

medical costs meet the “medically reasonable and necessary”

test

– Damages are only sufficient to compensate the patient or

make them whole – not punish the defendant.

Proving Damages

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• A properly presented damages defense enhances the

standard of care and causation defenses, which makes it

easier to prevail on key defenses.

• A properly presented damages defense will also help

prevent an aberration verdict.

Defending Damages

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• In catastrophic litigation there are often numerous categories of economic damages.

• Importance is to show what is already being provided to the plaintiff.

• This points out the overreaching of Plaintiff’s counsel.

• Shows the jury a lower cost, or amount the Plaintiff actually has to give up, to acquire something.

Defending Damages

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• Provide a realistic view of life expectancy

• Effective cross-examination of Plaintiff’s life care planner

• Obtain the right experts

– Life expectancy specialist

– Economist

– Trust officers

– Individual medical specialties by condition

– Insurance coverage and rates

How do we defend damages?

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• Necessary to obtain experts who understand and can articulate the

implications of the ACA

– Costs of future medical care

– Costs of premiums

– Future medical needs in consideration of what is provided for under the Act

Damages Experts

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The Life Expectancy Expert and the Plioplys Paper

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Most standard jury instructions allow for the use of

standard tables unless it is shown that the claimants

health is not average.

It therefore becomes the defendants’ burden to establish

the effect of morbidities upon mortality unless the

plaintiff admits that the plaintiff-minor does not have

the average life expectancy or plaintiff’s experts are

forced to admit such.

Whose burden is it to establish life expectancy?

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Do you have an opinion within a reasonable degree of

medical certainty when the survival curve for infants

similarly situated to plaintiff in this case falls to less

than 50%? (At what age are more than 50% of the

persons similarly situated to the plaintiff already dead?)

All experts should therefore be asked the following question:

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Actual Economic Damages Actual Economic Damages

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What is the actual cost of

care to date?

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Cross Exam Themes

• Plaintiff is receiving optimal care

(through treaters and parents)

• Plaintiff is not receiving optimal care through plaintiff’s

life care planner

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• Occupational therapists, physical therapists,

rehabilitation counselors, case managers, social workers,

psychologists, medical doctors, chiropractors, nurse

practitioners, special education professionals, licensed

speech pathologists, professional counselors and a

lawyer.

II. Life Care Planners – Who are they?

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• “Profession” sponsored by Plaintiff’s bar

• There is no government licensure or government

endorsed certification for life care planners in most

states.

• Private certifications exist for completion of courses in

hotels

• No “Board certification”

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• Pediatricians do not consult life care planners routinely

and do not report to them

• Children’s doctors do not use life care planners in

normal course of business

• Life care planner’s business is testifying in court

• Their “expert testimony” is raw hearsay

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• Business record?

• Routinely, healthcare providers do not exchange records with life care planners

• Life care planners get records routinely from lawyers

• Life care planners do not treat patients and patients do not see life care planners in routine healthcare business

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The Life Care Plan Is Not Ordered By Actual Physicians Responsible For Care

• Not to reasonable degree of medical certainty.

• Are not differential.

• Not based on real economic or medical data.

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Purposely ignore past actual:

• Medical expenses

• Attendant care and service costs

• Average lifetime costs for CP, MR and other

developmental disabilities

• Individualized Educational Plans specific to the plaintiff

minor in your case - IEPC

Life Care Planners

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• Healthcare

• Education

• Shelter

• Transportation equipment

• Dental care

• Long-term and elder care

For normal children, adolescents and adults

Life Care Planners Do Not Know the Average Lifetime Costs of:

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Is Unfairly Prejudicial And Likely To Mislead The Jury

• No basis in fact

• Not substantiated by national statistics

• Not supported by past cost

• Are designed to create the largest possible award rather

recognized actual cost

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• Based upon out of court statements not customarily

relied upon by real treaters in non-litigation settings.

• Are immaterial to issue of “actual”, “reasonably likely

to be incurred,” “certainty of occurrences,” “ballooned

beyond all rational experience,” “computerized

projections,” “conjectured,” unsubstantiated by prior

experience,” “have no basis in past experience,” and

“have not been pursued by plaintiff.”

Sources of Information Relied Upon

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Attacking the Life Care Planner

• Life care plans are largely fictions

– Sometimes life care planner is not a physician

› Merely a conduit or mouthpiece for someone else’s opinions

– The planner is often not responsible for implementing or overseeing the plan

– No/questionable statistics to show reliability

– Standard of care is to obtain insurance or create a special needs trust to preserve eligibility for Medicaid and Medicare

– Insurance would cover many portions of the life care plan

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“A scientist, however well credentialed he may be, is not permitted to be the mouthpiece of a scientists in a different specialty. That would not be responsible science.” Dura Auto. Sys. of Ind., Inc. v. CTS Corp., 283 F.3d 609, 614 [7th Cir. 2002) “The problem, then, is that the expert is vouching for the truth of what another expert told him—he is merely that expert’s spokesman” Sommerfield v. City of Chicago, 254 F.R.D. 317, 325 [N.D. Il. 2008)

[T]he court does not believe [the life care planner] has the education, training or experience needed to predict the care and treatment [plaintiff] needs today, or will need in the future.” Norwest Bank, N.A. v. Kmart Corp., 1997 WL 33479072 [N.D. Ind. 1997])

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• Ideally all of these strategies are combined to maximize the chances of success

• To maximize chances of success, these issues must also be raised:

– In the right forum

– At the right time

– In the right way

Putting It All Together

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Analyzing a Case

1. Look at the legal landscape

2. Understand the scope of coverage

3. Determine the role of the ACA for settlement

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• Review the legal landscape

Strategic Considerations: Know the Forum State

Collateral source rule or statute

Allows evidence of collateral sources at

trial

Allows evidence of negotiated

rates

Allows depositions of

medical experts

Availability of exceptions to

collateral source rule

• Opening the door • Duplication • Impeachment • Offers of Settlement

• Common law or modified?

• Types of actions • How are collateral

sources defined • State Farm Mutual

Auto. Ins. Co. v. Joerg, 2013 WL 3107207

• Yarrington v. Thornburg, 205 A.2d 1 (Del. 1964)

• Subrogation

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• ACA sets a floor but allows the states to set additional minimum benefits that must be covered

• Each State has designated a “benchmark plan”

• To illustrate, Maryland’s benchmark plan includes:

– Home Health Care Services

– Outpatient Rehabilitation Benefits

– Durable Medical Equipment Benefits

– Skilled Nursing Facility

Other Strategic Considerations: Scope of Coverage

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Maryland Benchmark Plan

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Matching a Policy to a Plan: Maryland Example

• Plaintiff injured after birth and suffers cognitive and neurological defects

• Plaintiff’s economist projects Life Care Plan between $51,489,580 and $63,148,256

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Case Example: Coverage Identified

• Identified Blue Preferred Platinum $0 plan

• Premium $2,280 annually

• Maximum out-of-pocket cost: $1,800

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Case Example: Life Care Plan v. Insurance

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Life Care Plan Future Value

Complications / Hospitalizations $1,486,712

Drugs and Supplies $1,226,486.10

Wheelchair $151,101.85

Home Accessories and Equipment $267,613.96

Health Evaluations $25,644

Case Management $244,296

Medical Routine Coverage $72,618

Medical Services $13,677.80

Orthotics/Prosthetics $76,590

Therapies $1,042,496

Insurance Plan

Covered

98.4% covered

99.7% covered

97.5% covered

Covered

Covered

Covered

Covered

Covered

35.1% covered

Matching a Life Care Plan with a Policy

• Often not covered are:

– Home services intended primarily for:

› Activities of daily living

› Food preparation

› Homemaking

› Relief for a primary caretaker

– private duty nursing

• Look to how a state defines home care coverage

• Look to how policies describe covered benefits

• Determine the frequency or amount of available benefits

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Another Example

• Chipping away at the life care plan:

– Plaintiff’s life care plan: $5.4 million - $28.7 million

› Annuity cost: $3.5 million

– Defendant’s life care plan: $2.7 million - $14.35 million

› Annuity cost: $1.5 million

– Defendant’s life care plan with insurance:

› Annuity cost: $900,000

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• Cases recently commenced:

– Pleadings

› Mitigation

› Collateral sources

› Discovery of collateral sources and cost of care to date

Other Strategic Considerations: Timing

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• Obtain experts early to determine potential savings

• Experts needed because mitigation is an affirmative defense (see Leung)

Cases Recently Commenced and Pre-Deposition

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The ACA is an Evidentiary Defense

• Simply pointing to the ACA has been rejected:

• Evidence should show future insurance coverage is reasonably certain:

– Link covered services and amounts to the items plaintiff puts in a life care plan

– Present a reasonable basis on which to believe that the plaintiff is reasonably certain to have the coverage, and

– Give the grounds to show with reasonable certainty the time period such coverage will exist

“But the mere possibility that private insurance coverage will continue, and the availability of government programs for the purchase of insurance, do not, in themselves, constitute relevant, admissible evidence of the future insurance benefits that a plaintiff is reasonably certain to receive.” Leung v. Verdugo Hills Hosp., 2013 WL 221654, at *11

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• Some defenses are more limited

• Regardless, still challenge the reliability and foundation

– Look for duplication

• What does the state allow as the measure of damages?

– Billed v. negotiated rates / “reasonable value”

– Subrogation rules

• How does the state define collateral sources?

Cases Post-Deposition but Pre-Trial

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Trial Imminent

• Options

– Duplication

– Voir Dire

– Cross-Examination on growth rate projections

– Motions to preclude

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• All damages arguments should be raised

– Ideally done with expert support and analysis

– Ideally a cost analysis is done early

– Can also be roughly done by looking at policies on state exchanges and projecting costs

• Can demonstrate that needs can be taken care of by purchasing a policy

– With additional amount for out-of-pocket expenses not covered

– Periodic lump sums

Settlement Discussions

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Settlement Case Examples

• Case #1 – 49-year-old female plaintiff

– Acute renal failure leading to right transmetatarsal amputation and limp

– Alleged cognitive issues, depression, anxiety, pain disorder

– Plaintiff’s Life Care Plan: $1.2 million

– Plaintiff’s Initial demand at mediation: $1.9 million

– Defendant’s proposed Life Care Plan with insurance: $400,000

– Case settled: $1.2 million › $650,000 for pain and suffering

› $550,000 for pecuniary expenses

– Total reduction of medical expenses 54%

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Settlement Case Examples

• Case #2 – Brain damaged infant living in Maine

– Maine’s benchmark plan provided for unlimited home health care

– Plaintiff’s initial demand: $20 million

– Case settled: $7 million

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• Begin early in the process

• Depositions are critical where available

• Consider what role, if any, the ACA should play in attempting to settle or mediate a case

Where We Go from Here

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Caryn L. Lilling clilling@mlnappeals.com

Mauro Lilling Naparty LLP 130 Crossways Park Drive Suite 100 Woodbury, New York 11797 T 516.487.5800 F 516.487.5811

Kitch Drutchas Wagner Valitutti & Sherbrook One Woodward Ave, Ste 2400 Detroit, Michigan 48226 T 313.965.6954 F 131.965.7403

Thomas R. Shimmel thomas.shimmel@kitch.com