Litigation and medical funding have been hot topics in the legal world for some time. In its most basic form, litigation funding allows a plaintiff to obtain a cash advance from a third-party lender while their case is pending to cover expenses like medical bills, while medical funding primarily assists the medical provider by purchasing that provider’s accounts receivables at a much lower rate, providing immediate payment to the provider (versus the provider having to wait until settlement of plaintiff’s case), and allowing the plaintiff to treat on a lien basis. In exchange, the plaintiff agrees to repay the third-party lender from any proceeds recovered. Typically, these advances are non-recourse – meaning that the lender is not entitled to any amount above what is recovered or is not entitled to any recovery if the plaintiff does not recover. However, as noted by multiple sources, the involvement of these companies as sources of funding for litigation has raised serious ethical concerns, including allowing a third-party to exercise influence or control over the litigation.
Typically, Georgia law prohibits the presentation of evidence to a jury that a plaintiff’s damages have been paid by an outside “collateral” source. McDonald v. Simmons, 207 Ga. App. 692, 428 S.E. 2d 690 (1993). As stated in Rangel v. Anderson, “[i]n Georgia, the collateral source rule ‘bars the defendant from presenting any evidence as to payments of expenses of a tortious injury paid for by a third party and taking any credit towards the defendant’s liability and damages for such payments.” 202 F. Supp. 3d 1361, 1372 (S.D. Ga. 2016). Under this rule, the jury cannot consider that a health insurance company or other outside source helped pay the plaintiff’s medical bills in order to reduce a tort feasor’s liability or responsibility for damages incurred by the plaintiff.
However, the collateral source rule applies to the admissibility of such information, rather than its discoverability. This critical distinction was highlighted in a recent Order issued Judge Benjamin Cheesbro of the United States District Court for the Southern District of Georgia- Brunswick Division in the case of Misty Spears v. Wal-Mart Stores East, LP, following our firm’s motion to compel records from Cherokee Funding.
In Spears, the plaintiff claimed to have sustained multiple injuries after a slip and fall at a Wal-Mart store. During the pendency of the litigation, medical funding company Cherokee Funding, LLC purchased the plaintiff’s accounts receivables from her treating provider at a much lower rate than the “blackboarded charges” (i.e. the full billed charges a plaintiff’s attorney submits to the jury during trial). Upon the discovery of Cherokee Funding’s involvement, Defense counsel served a subpoena on Cherokee seeking various documents related to plaintiff’s funding arrangement with Cherokee Funding, including information surrounding the reduced percentage that Cherokee paid the plaintiff’s provider in order to determine the true reasonable and customary value of plaintiff’s bills. Cherokee responded with blanket objections to many of the documents requested.
Drew Eckl partner Elissa Haynes ultimately briefed and argued a Motion to Compel against Cherokee to obtain several documents which Cherokee withheld from production. In that Motion, we argued that the documents were relevant to the potential bias, intent and motive of Cherokee Funding, as well as the reasonableness of plaintiff’s medical bills. As to the relevance, bias, and motive argument, Judge Cheesbro first emphasized the broad scope of discovery allowed under Fed. R. Civ. P. 26, specifically noting that “information within the scope of discovery need not be admissible in evidence to be discoverable.” Id. The Court went on to discuss the applicability of the collateral source rule to the discoverability of the requested documents. Relying on prior decisions from the Southern District of Georgia, the Court stated that Georgia courts have repeatedly held that litigation and medical funding companies, such as Cherokee, are not “traditional collateral sources,” but rather investors in lawsuits who receive no payment from plaintiffs until after the lawsuit ends.
The Court first pointed out that Cherokee Funding “is not….a traditional collateral source,” as it “serves as an investor in the lawsuit and receives no payment from the Plaintiff until after the lawsuit.” Houston v. Publix Supermarkets, Inc., No. 1:13-CV-206, 2015 WL 4581541, at *2 (N.D. Ga. July 29, 2015); Rangel, 202 F.Supp. 3d at 1373. Though the Court noted that the information sought may or may not be admissible at trial, under the broad scope of discovery allowed by Rule 26, the documents were clearly discoverable, and Cherokee could not hide beyond the collateral source rule to withhold production of same.
In the Spears Opinion, the Court engaged in a lengthy discussion of Cherokee Funding’s business model, noting that Cherokee, and by extension, Plaintiff’s healthcare providers do not recover if the Plaintiff does not recover at trial. Thus, a defense verdict would leave Cherokee and Plaintiff’s healthcare providers with no recovery for their investment in Plaintiff’s case. The Court cited to Houston and Rangel for the proposition that third-party litigation and medical funding companies are reliant on Plaintiff’s recovery at trial for their business models to flourish. No. 1:13-CV-206, 2015 WL 4581541, at *2 (N.D. Ga. July 29, 2015); 202 F. Supp. 3d 1361, 1372 (S.D. Ga. 2016). Thus, the treating physicians may have a motive to testify favorably for a plaintiff. The Court also noted, specifically with regard to Cherokee, that this motive may also extend to future profits to be earned through the referral of future plaintiffs. The Court echoed the arguments we made in our brief by addressing Cherokee Funding’s website references to Cherokee’s network of healthcare providers with whom Cherokee maintains ongoing relationships. Cherokee Funding’s website states that it engages in a “joint marketing effort” with plaintiff’s attorneys to “increase referrals” to healthcare providers, and that Cherokee Funding purchases receivables at the “highest prices.” Accordingly, health care providers are incentivized to participate in Cherokee Funding’s “Lien Purchase Program,” with the promise of large returns. Judge Cheesbro stated that this “may incentivize participating healthcare providers to provide services to plaintiffs they would not otherwise render, or at higher costs than they would otherwise charge, if they were to face non-payment from the plaintiff.” Ultimately, the Court held that the documents were discoverable as they could shed light on Cherokee Funding or Plaintiff’s healthcare providers’ bias, intent or motive.
The Court likewise held that Cherokee’s documents were relevant to show whether the plaintiff’s medical bills were reasonable and customary. Specifically, the Court noted that the difference in the amount charged to Plaintiff and the sum for which Cherokee paid on that charge to the provider goes towards the reasonableness of the charge. This is the first case in Georgia we have seen where a court has held that both the amount billed (known as the full “chargemaster” rate or the “blackboarded bill amount”) and the amount Cherokee pays to the provider for that treatment, are both relevant to determine the reasonableness of a plaintiff’s medical bills. The Court went on to explain how Cherokee Funding may also have a motive for healthcare providers to charge large amounts for medical procedures, and how this may affect the reasonableness of amounts charged to a plaintiff. Under their business model, Cherokee purchases a receivable for a certain procedure at a lower rate than what is charged to a plaintiff by the provider. For example, if the healthcare provider charges $25,000 to a plaintiff for a certain surgery, and Cherokee purchases the receivable for that surgery for $1,500, Cherokee will still recover the full $25,000, if the Plaintiff recovers at trial. The high price paid to healthcare providers for receivables by Cherokee funding potentially incentivizes these providers to perform more procedures at higher prices, to ensure that they will have a continuing relationship with Cherokee Funding. Clearly, Cherokee Funding also profits from the recovery of these higher amounts. The Court noted that “it is plausible, and, perhaps, likely” that both the medical providers at Cherokee would seek to maximize the number of procedures and the amounts billed for those procedures. In light of the potential for inflating such costs and the possibility that unnecessary procedures would be performed in order to maximize profits, the Court held that the documents sought were relevant to the issue of the reasonableness of Plaintiff’s medical expenses and were discoverable.
Ultimately, this ruling provides great precedent for uncovering evidence of bias, intent, motive, and the reasonableness of a plaintiff’s medical bills in cases involving litigation and/or medical funding companies. The next argument, of course, is admissibility of such documents at trial. We look forward to watching this area of law evolve.