Academic journal article Defense Counsel Journal

New Healthcare Lien Recovery Theories by Third-Party Payors: Strategies and Tactics for the Defense

Academic journal article Defense Counsel Journal

New Healthcare Lien Recovery Theories by Third-Party Payors: Strategies and Tactics for the Defense

Article excerpt

MOST ATTORNEYS remember the "good ole days" when health care liens on recoveries were simple and generally speaking, the "plaintiff attorneys' problem" since no funds were ever paid until plaintiff's counsel had settled the lien. And while this traditional model of third-party payor ("TPP") recovery remains viable, in these days of mass tort, suddenly, health insurance carriers have identified a far more threatening, expensive and dangerous means of recovering all of their losses in one fell-swoop: suing the alleged tortfeasors directly. With this strategic shift, defense counsel must stay attuned to the ever-changing complexity of TPP litigation. This article examines various approaches health insurers are employing to recover losses in the aggregate and also discusses strategies defense counsel should consider using to defeat such claims.

I. The Role of Third Party Payors in the American Health Care System

Today's health care system is one in which employers provide, either in the form of their own funds or through insurance, for their employees' medical needs. To operate, insurers charge their enrollees an upfront fee, i.e. a "premium", in exchange for insurance coverage. (1) The value of the premium is continually adjusted by the insurer over time to compensate for known risks assumed under that coverage, such as the estimated costs for prescription drugs covered under a policy (2) or for the implantation of a prescription medical device. As the Eleventh Circuit Court of Appeals recently explained:

   Because the value of the estimated
   claims drives the premium rate, the
   premium charged for a policy largely
   depends on the scope of the coverage
   under that policy. The broader the
   coverage offered--i.e., the more
   health care services indemnified by
   the insurer--the higher the premiums
   charged for that policy. In other
   words, covering more health care
   services creates a likelihood of more
   claims and, correspondingly, a greater
   projected claims value. The insurer
   will fund these higher costs through
   escalated premiums. (3)

The premium is essential to the insurer's goal of profitability. If calculated properly, (4) from the insurer's perspective, the insurer will collect more in premiums than it pays out in claims. However, when the claims exceed the insurer's projections, the insurer bears the risk of loss and, if those losses are due to an event, such as a medical device recall that impacts a significant number of insureds, the TPP will most certainly seek out ways to be made whole. (5)

II. Recovering Aggregate Losses

Traditionally, TPPs have sought to recoup their losses by asserting their rights to subrogation on a case-by-case basis. Under this approach, a TPP's liens are paid only if and when their insureds recover from their alleged tortfeasors, i.e., prescription drug and medical device manufacturers. TPPs are now trying to recover their losses in the aggregate pursuant to two different theories of direct liability, depending on whether prescription drugs or medical devices are involved. In the context of prescription drugs, the TPPs argue that, as a direct result of the drug manufacturer's fraudulent conduct--falsely touting the off-label benefits of a particular prescription drug--(6) their insureds' treating physicians were induced to prescribe the drug more frequently when cheaper alternative options were available. (7) Under this theory, the insurers seek to recover, in the aggregate, the difference between the amount actually paid and the amount that would have been paid for the less expensive alternative.

Conversely, when prescription medical devices are at issue, these same insurers allege that, as a direct result of a manufacturer's wrongful conduct-designing, manufacturing, and selling allegedly defective devices--their insureds incurred physical and/or emotional harm, for which otherwise unnecessary medical treatment became necessary. …

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