A previous version of this article was published online in an issue of California Healthcare News.

The future of health care costs remains unclear with the looming possibility of a repeal and replacement of the Affordable Care Act.

With new laws and regulations coming into play, increased scrutiny will be placed on the methods used to determine the reasonable value of future medical costs—especially in litigation cases between providers and health plans and on behalf of patients and providers involved in malpractice, workers’ compensation, and personal injury cases. Additionally, with the possible repeal of certain prohibitions protecting those with pre-existing medical conditions, the line between which factors determine reasonable value could become blurrier.

Defense attorneys need to understand how the reasonable value of medical expenses is determined, especially future medical costs, as vast discrepancies may be found in the disputed amount—negatively affecting litigation outcomes.

Background

Past court rulings have raised several questions around the reasonable value of past and future medical expenses. For personal injury or medical malpractice cases, reasonable value has historically been driven by a provider’s billed amounts for past and future medical services. However, the law didn’t consider negotiated discounts or write-offs as part of the ruling, and in 2011, the California Supreme Court ruled in Howell v. Hamilton Meats & Provisions, Inc. that an injured plaintiff whose medical expenses are paid through private insurance could only recover the contractually adjusted amount that was actually paid – not the full amount billed. This significantly impacted personal injury and medical malpractice cases from both a plaintiff’s and defendant’s perspective.

Court rulings, such as Howell, have wide-ranging effects on personal injury and medical malpractice claims. That particular ruling helped drive down a potential windfall of monetary recovery, discouraging frivolous malpractice lawsuits. It also shined a light on the fact that health care providers are rarely paid in full and that they have contractual agreements to accept significantly less from health insurers.

Determining Reasonable Value for Future Medical Services

The issue of how medical services are valued still remains. This is particularly important when a patient needs long-term care. Typically, an expert is called in to determine the reasonable value of future medical costs of a life care plan. Since Howell didn’t address recovery for future medical services, future medical expenses continue to be primarily determined based on the provider’s full billed amount.

In 2013, the Third Circuit Court of Appeals in California issued a ruling in Corenbaum v. Lampkin that limited the expert from using the full amount billed for past services to determine reasonable value for future medical services. However, it didn’t determine the cost of future medical services to be a pre-negotiated rate paid by insurance companies.

Reasonable value is often determined based on the rates a provider is normally paid by a plaintiff’s insurer or by the usual customary and reasonable (UCR) rate. UCR rates are normally based on the amount paid for a medical service in a geographic area based on what providers in the area usually charge for the same or similar medical service. Since the UCR rate is based on the average in a certain location, the rates are more stable and aren’t based on a single bill that is significantly higher or lower than what the market demands.

Be Prepared

With an uncertain and changing health care landscape, there are increasingly complicated factors to consider when determining reasonable value for future medical costs. Factors such as the plaintiff’s current insurance coverage, ability to obtain insurance, the rate that the provider normally accepts in his or her practice, and service location and type must all be taken into consideration when determining fair value.

Engaging a medical billing and reimbursement expert to determine and testify to the reasonable value of future medical services based on the provider’s location is highly recommended. Determining the cost of medical care can be complicated, especially with the recent proposed changes in health care, and guidance is critical to help ensure you have a clear understanding of what’s fair and reasonable.

Understanding the nuances in the health care industry, especially the implications of medical billing and reimbursement, can help guarantee a more favorable outcome for defense attorneys and defendants.

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For more information on how to determine reasonable value for future medical expenses, contact your Moss Adams professional.