Our day job has been keeping us busy, so busy with depositions, motions, delayed flights, and assorted drama that we have not posted in more than a month. After such a long layoff, we had hoped to return with a vengeance, a “the North remembers” sort of vengeance. Instead, we get fair market value, Current Procedural Terminology codes, and a Daubert challenge to a defense expert accountant. Eh. The decision is in a False Claims Act case about Medicare fraud and kickbacks, about which we care and have even spent some billable time. But the reason we are writing about U.S. ex rel Lutz v. Berkeley Heartlab, Inc., No. 9:14-cv-00230-RMG, 2017 U.S. Dist. LEXIS 107481 (D.S.C. July 12, 2017), is because the rejection of opinions offered by the expert in this case undercuts the damages claims we see in other cases.
Lutz involves allegations that the defendants overbilled Medicare in connection with blood tests. One part of the alleged scheme was that the defendant labs charged high processing and handling fees. (We will ignore the issues of FCA materiality and causation that seem to flow from the absence of evidence of Medicare payment on processing and handling charges.) From what we can tell, the defendant’s expert opined that these fees were consistent with the fair market value—a defined term under the, aptly named, Stark Act—and did not represent kickbacks to referring physicians. He offered a “charge-based methodology” to conclude that the fees were consistent with fair market value because physicians allegedly expected to recover for time spent on processing handling, not just for the actual blood draw.
“[I]t is no secret that the sticker price of services listed in physician bills and hospital chargemasters are totally unmoored from the reality of arm’s-length transactions actually taking place in the marketplace.” Id. at *12. We think you can see where we are going with this. In product liability cases, economic damages related to medical care, past and future, are typically based on amounts incurred. The collateral source rule is often used offensively to create a windfall of the difference between the amount on the bills and the portion of that amount anybody ever paid or will pay. We have called this “phantom damages.” In FCA, RICO, and consumer protection cases, for instance, the plaintiff’s theory of price gouging or other impropriety sometimes relies on the list price of a drug or the amounts appearing on bills, regardless of what typically gets paid. Although in the context of granting a challenge to an expert for healthcare providers that wanted the charges to matter, the Lutz decision supports the more typical defense position.
Actual transactions, not just bills, are a better indicator of fair market value because “physicians deliberately set their fees higher than the amount they either expect to receive or do in fact receive to ensure that no money is left on the table.” Id. at *16. The court identified a number of decisions, from various types of cases, recognizing that “physicians’ billed charges do not necessarily reflect the market value of physician services.” Id. at **17-18 (citing cases). So, the next time you have a case where the plaintiff says her damages include the total of all her medical bills and the only support she needs is her expert mouthing that “the charges were all reasonable and necessary,” think about whether Lutz and the cases it cites help you push back. That was our return: brief, a little bloody, and with the promise of more to come.