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The Affordable Care Act: Taking a New Approach to Damages


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Presented at ACI's 13th Annual Advanced Forum on Obstetric Malpractice Claims by Caryn L. Lilling Mauro Lilling Naparty LLP and Thomas R. Shimmel Kitch Drutchas Wagner Valitutti & Sherbrook.

Published in: Law, Economy & Finance, Business
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The Affordable Care Act: Taking a New Approach to Damages

  1. 1. 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
  2. 2. 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 2
  3. 3. 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) 3
  4. 4. Essential Health Benefits • All qualified plans are required to provide “minimum essential coverage.” The minimum essential coverage required must include: 4 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
  5. 5. 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.” 5
  6. 6. 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 6
  7. 7. 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? 7
  8. 8. 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 8
  9. 9. 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)
  10. 10. 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 10 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)
  11. 11. 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 11
  12. 12. 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)
  13. 13. 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 13 1 93 Cal. App. 4th 298, 306 (Cal. App. 1st Dist. 2001) 2 686 N.W.2d 150, 156 (Iowa 2004)
  14. 14. 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% 14
  15. 15. 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 15
  16. 16. Tell a Different Story 16
  17. 17. • 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 17
  18. 18. • 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 18
  19. 19. • 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 19
  20. 20. • 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 20
  21. 21. • 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 21
  22. 22. • 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? 22
  23. 23. • 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 23
  24. 24. The Life Expectancy Expert and the Plioplys Paper 24
  25. 25. 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? 25
  26. 26. 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: 26
  27. 27. Actual Economic Damages Actual Economic Damages 27
  28. 28. What is the actual cost of care to date? 28
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  31. 31. Cross Exam Themes • Plaintiff is receiving optimal care (through treaters and parents) • Plaintiff is not receiving optimal care through plaintiff’s life care planner 31
  32. 32. • 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? 32
  33. 33. • “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” 33
  34. 34. • 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 34
  35. 35. • 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 35
  36. 36. 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. 36
  37. 37. 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 37
  38. 38. • 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: 38
  39. 39. 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 39
  40. 40. • 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 40
  41. 41. 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 41 “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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  44. 44. • 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 44
  45. 45. Analyzing a Case 1. Look at the legal landscape 2. Understand the scope of coverage 3. Determine the role of the ACA for settlement 45
  46. 46. • 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 46
  47. 47. • 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 47
  48. 48. Maryland Benchmark Plan 48
  49. 49. 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 49
  50. 50. Case Example: Coverage Identified • Identified Blue Preferred Platinum $0 plan • Premium $2,280 annually • Maximum out-of-pocket cost: $1,800 50
  51. 51. Case Example: Life Care Plan v. Insurance 51 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
  52. 52. 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 52
  53. 53. 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 53
  54. 54. • Cases recently commenced: – Pleadings › Mitigation › Collateral sources › Discovery of collateral sources and cost of care to date Other Strategic Considerations: Timing 54
  55. 55. • Obtain experts early to determine potential savings • Experts needed because mitigation is an affirmative defense (see Leung) Cases Recently Commenced and Pre-Deposition 55
  56. 56. 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 56
  57. 57. • 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 57
  58. 58. Trial Imminent • Options – Duplication – Voir Dire – Cross-Examination on growth rate projections – Motions to preclude 58
  59. 59. • 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 59
  60. 60. 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% 60
  61. 61. 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 61
  62. 62. • 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 62
  63. 63. 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 Kitch Drutchas Wagner Valitutti & Sherbrook One Woodward Ave, Ste 2400 Detroit, Michigan 48226 T 313.965.6954 F 131.965.7403 Thomas R. Shimmel