1/15/2018

The Funding Company Predicament

Separating medical funding from 
a normal collateral source

By Jonathan Morgan , Jonathan M. Adelman

Historically, legal funding meant the lending of money to a plaintiff/claimant who uses his claim as collateral. Unfortunately, it has transformed into something seemingly more nefarious.

Legal funding now equates to medical funding. Under a medical funding agreement, a claimant is referred to a health care provider or diagnostic center that agrees to treat the claimant for an extremely discounted amount. In exchange, the funding company reserves the right to collect for “full value” of the services rendered. Any amounts collected for the services rendered go to the funding company only. Oftentimes, the funding company sends an invoice on the letterhead of the entity rendering treatment, effectively hiding the involvement of a funding company.

This type of activity is fraught with potential problems. First, health care providers receiving referrals from the funding company may be incentivized to exaggerate findings or relate findings to a tortfeasor’s conduct in order to make a recovery more likely so that it can continue to receive referrals from that funding company.

Second, the amount paid by the funding company for treatment is typically only a fraction of the amount stated on the funding company’s invoice. This raises serious issues about whether the charged amount is the “reasonable and customary” charge.

Third, in states like Georgia where there are no statutes or regulations that apply to funding companies, the claimant himself may not even be aware of the funding company’s involvement or, more importantly, the difference between what the funding company paid for treatment and what amount is alleged to have been charged. This means that when settlement funds are being allocated between the claimant, the health care providers, and the claimant’s attorney, the claimant may not realize that he is effectively paying a multiple of the actual charged amount for services provided to him.

Funding companies are often able to hide behind collateral source rules, which provide that evidence a claimant’s health care bills have been paid by a third-party is inadmissible. This rule stems from the idea that a claimant who has paid for health insurance should not be entitled to a lesser recovery than a claimant who has not paid for health insurance. Unfortunately, the collateral source rule has, with the support of claimants’ attorneys, morphed to mean that any evidence regarding amounts paid for health care services is inadmissible.

Fortunately, there seems to be some recent recognition that medical funding is different than a normal collateral source. In Bowden v. The Med. Ctr., Inc., the Georgia Supreme Court held, “[W]here the subject matter of a lawsuit includes the validity and amount of a hospital lien for the reasonable charges for a patient’s care, how much the hospital charged other patients, insured or uninsured, for the same type of care during the same time period is relevant for discovery purposes.”

Clearly, the rationale behind this holding is not limited to hospital lien cases. In fact, the United States District Court for the Northern District of Georgia has interpreted that the holding also applies to typical bodily injury cases. In Houston v. Publix Supermarkets, Inc., the defendant sought to introduce evidence of a litigation funding company’s payment of some of the plaintiff’s medical bills, contending that the payment related to the reasonable value of plaintiff’s medical expenses. The plaintiff argued that any information regarding the agreement between the funding company and the health care provider was irrelevant because it related to collateral source information. The court determined the information was not barred by the collateral source doctrine as the defendant did not offer the evidence in order to reduce its liability, but rather to attack the credibility of the plaintiff’s experts and the reasonable value of medical services. 

Specifically, the court found that the evidence was relevant to the reasonableness of the plaintiff’s medical bills, since the litigation funding company purchased those bills at a discounted rate from the plaintiff’s providers. The court specifically said that “the Georgia Supreme Court recently noted that a fair-minded juror can consider the difference between the price charged to insured and uninsured customers when determining the reasonable value of medical bills.”

Furthermore, the court held that the existence of the funding company was admissible to attack the credibility of the doctor receiving the referral from the funding company. Of note, in Rangel v. Anderson, the United States District Court for the Southern District of Georgia followed the Bowden decision and ruled that evidence of funding company involvement was admissible despite the collateral source rule.

The United States District Court for the Western District of Texas, in C.R of Galaviz v. England, faced a similar question. There, the defendant sought the production of documents from a funding company to determine the reasonableness of health care expenses in a tort case. The Texas court determined the request was “relevant to a determination of whether amounts paid for medical and health care expenses were reasonable and necessary….”

It is our opinion that the entire purpose of the collateral source rule is to prevent a situation where a claimant, who has paid for health insurance, recovers less from a tortfeasor than a plaintiff who has not paid for health insurance. Still, claimants’ attorneys often take the position that the rule prevents the introduction of any evidence, or even a simple discovery inquiry, regarding what amounts a health care provider is actually paid. 

In the context of personal injury litigation, it is unequivocal that only “reasonable and customary” health care charges are recoverable. The collateral source rule should not be utilized to handcuff a defendant’s ability challenge the reasonableness of charges. A defendant should not simply be required to accept the provider’s word on what is reasonable. That flies in the face of common sense and our system of justice—and O.C.G.A. § 24-9-921, which specifically states that “nothing in this Code Section shall be construed to limit the right of a thorough and sifting cross-examination as to such items of evidence.”

A defendant must be afforded the opportunity, if desired, to ask reasonable questions of providers to determine whether the charges stated on paper are “reasonable and customary” or are simply made up numbers that have nothing to do with what a provider expects to be paid for its services. What if it turns out a provider is effectively inflating the alleged “reasonable and customary” charges for personal injury claimants compared to other patients? Clearly, discovery on that matter would be allowed. What if it can be shown that a provider never expects to be paid the full extent of its stated charges? That necessarily would imply that the stated charges are not the “reasonable and customary” charges. 

In a world where insurance companies are constant targets of fraudulent schemes, claims investigators should recognize the potential for instances where funding companies and health care entities have shared ownership. In this scenario, a holding company might influence both the medical and legal aspects of personal injury claims, while claimants are unknowingly utilized as pawns in the scheme. In fact, settlements may leave such claimants with little-to-no recovery due to monies paid to funding companies, health care providers, and attorneys. If claims handlers and investigators suspect collusion between a funding company and a health care provider, they should notify their companies’ special investigation units.



Jonathan Morgan is a litigation specialist at Georgia Farm Bureau Mutual Insurance Company. He is a member of CLM’s Insurance Fraud Committee and can be reached at jamorgan@gfb.org.

Jonathan M. Adelman is a managing partner at Waldon Adelman Castilla Hiestand & Prout. He can be reached at jadelman@wachp.com.

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