Subrogation, Where Much Of The Hip Implant Settlement Money Will Go
We have a fair number of hip replacement lawsuits at the firm, so we follow all of the news related to them, including last week’s article in the New York Times about “The High Cost of Failing Artificial Hips“, which included a key point that hasn’t received much attention in the press:
In August, Mr. Dougherty underwent an operation to replace a failed artificial hip, but his pelvis fractured soon afterward. The replacement hip was abandoned and then a serious infection set in. Some of the bills: $400,776 in charges related to hospitalizations, and $28,081 in doctors’ bills.
I can guarantee you Mr. Dougherty’s insurer, hospital, and orthopedic surgeon don’t plan on taking payment in flowers and boxes of chocolate notes. As the article continues:
The incidents have set off a financial scramble. Recently, lawsuits and complaints against makers of all-metal replacement hips passed the 5,000 mark. Insurers are alerting patients that they plan to recover their expenses from any settlement money that patients receive. Medicare is also expected to try to recover its costs.
While his insurer has covered his bills so far, Mr. Dougherty said he was preparing to sue his surgeon, who may have implanted the device incorrectly, and Johnson & Johnson, which produced his artificial hip, to help recoup some of the insurer’s money.
“All these payers want to be paid back,” said Matt Garretson, the founding partner of the Garretson Resolution Group, a firm in Cincinnati that manages product liability cases.
Perhaps it’s best to explain the situation by explaining what the New York Times means when it says Garretson’s firm “manages” product liability cases. We’ve retained Garretson’s firm in the past: they don’t represent clients in litigation, but rather assist plaintiff’s lawyers with “lien resolution,” a multi-billion-dollar industry that deserves a lot more attention from legislators in this day and age.
Take Mr. Dougherty, the 55-year-old referenced by the New York Times’ article. He’s too young for Medicare, so I assume he has some degree of private insurance. (Really, it doesn’t matter, because Medicaid and Medicare follow similar practices.) The article describes just under a half-million-dollars in medical bills he’s racked up as a result of his defective hip implant, and I’m betting the actual costs of revision surgeries, hospital recovery, rehabilitation, prescription pain killers, follow-up treatment / monitoring, and all the rest are much higher, potentially more than a million dollars.
As the article notes, Mr. Dougherty intends to file a lawsuit against Johnson & Johnson, the parent company of manufacturer of his hip (presumably one of the ASR or Pinnacle hips), DePuy Orthopedics. So here’s the big question: how will his medical bills be paid out of the lawsuit?
Every private health insurance plan I know of, as well as Medicaid and Medicare, includes a “right of subrogation” that allows the insurer (or the Centers for Medicare & Medicaid Services, or “CMS”)) to recover any payments it made to cover the medical care of an insured or beneficiary if that person recovers money from someone else to compensate them for those same injuries. For complicated reasons outside the scope of this post (the “collateral source rule”), a personal injury plaintiff can generally show a jury the full price of the medical treatment they received or will need in the future as a result of the defendant’s negligence, even if the plaintiff isn’t going to pay all of that out-of-pocket because an insurer or CMS will pick it up. On the flip side, however, the insurer or CMS imposes a “lien” on the judgment so that, if the plaintiff recovers compensation through a verdict or settlement, they then have to pay back the insurer or CMS for the treatment they received.
If Mr. Dougherty pursues his case all the way through trial and appeal and wins a judgment that includes the full value of his medical care, then the subrogation issue is usually simple: Mr. Dougherty has to pay back to his insurer whatever medical bills the jury thought were caused by the defendant’s negligence, minus whatever Mr. Dougherty paid out of pocket.
But few cases are resolved that way, and the majority of DePuy recall cases will likely end in some sort of settlement or another. (Same goes for all the major mass torts, including Actos cancer, Pradaxa bleeding, and the implanted vaginal mesh erosion.) At that point, things get really complicated, and the courts still haven’t figured out how to value subrogation claims in the context of a settlement. If someone with a defective hip receives $500,000 in medical care paid for by their insurer, files a suit against Johnson & Johnson asking for compensation for the medical care and $500,000 in lost wages and pain and suffering, and then settles their case for $750,000, how much should the insurer get?
I’ve explained some of these subrogration lien issues before while discussing how the federal court in Philadelphia resolved one case here by simply making its own estimate of how much the case was really worth and then discounting the subrogration lien appropriately. About a year ago, I warned other lawyers not to allow settling defendants send checks directly to insurers, to CMS, or to state Departments of Public Welfare, just to see the Third Circuit Court of Appeals throw that advice into question a few months later.
It’s all quite complicated, which is why firms like mine often call Garretson for the specific purpose of meeting all the regulatory requirements for satisfying these medical liens and negotiating with the insurers and CMS to get the liens down as a low as possible, including by challenging the claimed value and payment of the health care services provided. We deal with proving the case against the hip manufacturer, they figure out the size of the liens and start negotiating.
But there’s an even larger issue that needs to be addressed. As I’ve discussed several times on this blog, including most recently in reviewing the most notable prescription drug and medical device court opinions of the past year, Congress, state legislatures, and the courts have thrown up a lot of barriers to prevent drug and device companies from being held legally accountable for their negligence.
What those same elected officials and judges need to understand, though, is that these barriers to civil justice don’t just deny patients compensation — which is wrong enough — but also leave insurers, health benefit plans, unions, and taxpayers on the hook for a private company’s negligence. If courts dismiss our hip implant cases for absurd and reasons unrelated to the merits of the case like “implied preemption,” that hurts our clients and society as a whole.
We spend a lot of time talking about rising health care costs in America, but in that discussion we never talk about holding the negligent corporations that caused the injuries responsible for the damage they caused. Politicians routinely blame the medical malpractice lawyers for rising health care costs, even though the entire malpractice liability system costs less than $5 billion a year and the economic damage caused by malpractice itself is more than four times that. The hip recall situation is the same: hip implant lawyers didn’t do anything to make nearly 100,000 DePuy patients need new surgeries. Johnson & Johnson did that, and they should be held fully responsible for it.