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Prior to the events in the episode, Martin had badly mangled the thumb on his right hand and came to the hospital's emergency room. He was seen by Robert Chase on a surgical consult and he was so concerned about the cost of his insurance deductible (about 40% of the overall cost) that he asked for the cheapest option. Chase told him that it was amputation followed by suture of the open wound at a cost of about $1,200. Martin agreed to that. However, when Chase had him under anesthetic he couldn't go through with it as microsurgery would allow Martin to keep his thumb and gave him an excellent chance of recovering near full use of it. He did the microsurgery instead and to Martin's shock he got a bill for $36,000.
Martin hired a lawyer, Ronald Westbrook, who sued the hospital and then barged in on Cuddy to discuss settlement. Cuddy wasn't familiar with what happened, but noted that Martin got excellent care and was expected to make a full recovery. His lawyer noted that the surgery had been done without informed consent. Because of the lawsuit, Atlantic Net wouldn't pay it's share of the costs of the procedure.
Cuddy went to Chase who explained what happened. Cuddy was unhappy, but sympathetic to Chase's decision. Hoewever, Cuddy was under pressure because she was about to break the contract with the insurance company and needed all the money the hospital could get.
Later, Cuddy met with Martin and his lawyer and told him that his malpractice suit was likely to fail and that she would be suing him for his share of the procedure. She noted that not only did the surgery mean he could go back to work, without a thumb he would not even be able to dress himself. Martin countered he was unemployed and with the hospital bill, he would have trouble making his house payments. Cuddy threatened to take his house if that's what it took for the hospital to get paid.
Later, after Cuddy won her fight with the insurance company over reimbursements, she went back to her office and found a large installment payment from Martin. She tore it up.