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March 31st, 2011

Personal Injury Lawyers Prevail on ‘Phantom Damages’ in Colorado

Regular Judicial Hellholes readers may recall that a 4-3 Colorado Supreme Court decision last year earned a “Dishonorable Mention” in our latest annual Hellholes report.  The decision let stand lower court rulings that allowed personal injury plaintiffs under the state’s collateral source rule to collect so-called “phantom damages,” i.e., payments for medical services that neither they nor their insurers were ever asked to make.

Phantom damages are the difference between the amount of medical expenses billed by a doctor (the “sticker price”) and the amount that the plaintiff and his or her insurer actually paid for those services. Noone ever paid these damages because insurers, Medicare and Medicaid have negotiated rates with health care providers. For example, a hospital may charge $1,500 for an MRI, but the actual amount paid for that MRI might be $500. The plaintiff may have paid a $25 co-pay and the insurer paid the remaining $475. Yet, in litigation, the defendant is often required to pay the full $1,500 to the plaintiff — $1,000 more than anyone ever paid – simply because that amount was printed on the original bill.

In the typical slip-and-fall case decided by the Colorado Supreme Court, the amount paid by the plaintiff’s insurer for his medical expenses came to $43,236, while the amount billed, before application of the negotiated rate, was $74,242. Yet, the defendant, the nonprofit Volunteers of America, was required to pay based on medical costs that included $31,006 in medical discounts that the company had negotiated with healthcare providers. As this example shows, inclusion of such illusory costs can easily increase awards for damages in personal injury suits by 40% or more. It is enormously wasteful for defendants to “over-compensate” plaintiffs for their medical bills. These costs are invariably passed on to consumers in the price of goods and services, including health care.

To the credit of some Centennial State lawmakers, corrective legislation easily passed in the House, 37-27, earlier this year.  But, at the expense of auto and health care insurance premium payers, trial lawyers have just managed to kill the bill in a Senate committee — on a straight party line vote of 3-2.  The Denver Business Journal offers more details.

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