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Colorado Supreme Court: Plaintiffs Can Recover ‘Phantom’ Medical Damages

In November 2010, the Colorado Supreme Court ruled in a sharply divided 4-3 decision that plaintiffs may collect costs of medical care that were billed, but never actually paid. These so-called “phantom damages” unjustifiably impose millions of dollars worth of costs on consumers and businesses each year.

There is often a sizable difference between the amount of money a doctor theoretically charges for services and the amount the doctor is actually paid, either by the plaintiff or the plaintiff ’s insurer. In personal injury litigation, a defendant who is found liable must pay the medical expenses associated with the plaintiffs’ wrongfully-caused injury. But the plaintiff can be “over-compensated” by recovering the doctor’s full “sticker price” even though neither the plaintiff (due to his or her insurance) nor the insurance provider (which pays a substantially lower negotiated rate) actually paid that sticker price.

This over-compensation is often substantial. For example, the Colorado case involved a typical slip-and-fall that occurred at an event sponsored by the nonprofit Volunteers of America, for which the plaintiff was found 49% at fault. 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. As this example shows, inclusion of such illusory costs can easily increase awards for damages in personal injury suits by 40%. And these costs are invariably passed on to consumers.

Three members of the Colorado Supreme Court found that the majority ignored the legislature’s clear intent to prevent such over-recovery by allowing damages only for amounts an insurer actually pays on the plaintiff ’s behalf, not amounts for which anyone was ever actually liable. As the dissent noted, “the majority proceeds to rebuild the statute’s limited contract exception into a vehicle for tort plaintiffs to recover nearly any theoretical damages that are mitigated by their insurance policies.”

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