Majority of US States Block Juries’ Access to True Medical Costs

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ATRA President Tiger Joyce writes about the troubling new trend of medical financing in litigation for Medium.

Jury verdicts across the country continue to rise, with payout amounts increasing 51.7% annually from 2010 to 2018 while overall inflation grew only 1.7%. As trial lawyers flock to file lawsuits in the wake of the pandemic, the U.S. is poised to hold onto its reputation as the most litigious country in the world, and our $373.1 billion tort system is likely to grow even more expensive.

While small and large businesses may face lawsuits that bankrupt them, everyday Americans pay the price of lawsuit abuse through a “tort tax” costing more than $760 per person every year in the most litigious states, referred to as “Judicial Hellholes.”

Phantom Damages

A troubling new trend in our civil justice system threatens to further bloat the system, as “phantom damages” grow larger due to an increased use of medical finance companies and “letters of protection.” Inflated medical bills occur when patients utilize these third-party medical finance companies or when trial lawyers give “letters of protection” to medical providers for their clients’ treatment.

The resulting “phantom damages” are not new. They exist any time lawsuit recoveries are calculated using the dollar amount a patient was billed for a medical service instead of the amount the patient, their insurer, Medicare, Medicaid, or workers’ compensation actually paid for treatment. For example, a hospital may bill $20,000 for an emergency room visit, while the amount the hospital actually receives after adjustments may be $8,000. The $12,000 difference is not owed or ever paid in the real world.

Unfortunately, too often, the legal system does not follow “real world” economics. Instead, it provides opportunities and incentives for attorneys, clients, and others to pretend a “billed” amount is a real number an individual would be expected to pay for treatment. But, it isn’t. The use of inflated billed amounts only increases the overall cost of the judicial system, spreading the financial burden on the backs of every American through higher costs on goods and services.

Medical Financing and Letters of Protection

Instead of using health insurance coverage, trial lawyers are now encouraging clients to enter into agreements with third-party medical financing companies to pay for medical care related to injuries, or offering a “letter of protection” to the medical provider.

Letters of protection typically do not include a medical financing company. Rather, the doctor treats the patient based on the letter of protection provided by the patient’s lawyer, stating that the bill will be paid out of the settlement or verdict awards.

In some cases, lawyers will even recommend clients to doctors the lawyer has a relationship with, and those doctors often charge a much higher amount than a typical doctor might charge.

With the advent of medical finance companies taking out liens on medical care and the use of letters of protection, phantom damage amounts in individual cases have increased considerably.

In a prime example, a plaintiff in a case in Florida slipped and fell in a grocery store, injuring both knees, requiring identical surgeries on each knee. For the first knee surgery, the plaintiff used health insurance, was billed $19,000 by the doctor and the total cost was $3,400. However, the second knee surgery was performed under a “letter of protection,” resulting in $59,000 billed by and owed to the surgery center.

Medical financing and utilizing letters of protection are similar in that the patient still finds themselves liable for the full amount billed even if they do not recover in the lawsuit. Patients don’t benefit from insurers’ price negotiations and are responsible for inflated medical costs.

Not Quite the Whole Truth

Inflated bills become a driving factor for settlements or jury awards in personal injury cases when juries are asked to assign a verdict of three to four times the amount of the inflated medical bills.

But, juries are only told the “phantom” large dollar amount billed. They are not informed of the actual amount paid by a patient or his or her insurer. They’re not made aware of the financial interest of medical finance companies or their impact on health care costs. Consequently, we see higher and higher phantom damage awards and settlement amounts based on exaggerated numbers intended to produce a larger payout for trial lawyers.

Juries’ lack of access to critical evidence is allowable in more than 36 states, contributing to the dramatic rise in settlements and verdicts with phantom damage awards.

Twenty-five states plus DC allow full recovery of phantom damages under most or all conditions, with little opportunity for defendants to question juries about whether medical bills reflect a reasonable market value.

Eleven states allow juries to consider evidence of phantom billed numbers, but courts reduce awards post-trial to actual amounts paid. While a slight improvement from those allowing full recovery of phantom damages, this approach demonstrates a lack of trust for juries by withholding the reality of the medical care costs at issue.

Instead of hindering transparency, juries should receive crucial evidence they need to fully analyze each case. Juries should also be made aware of referral relationships between attorneys and doctors as well as both usual and customary billed costs to compare with those requested in cases where medical finance services or letters of protection are involved.

Given the recent trend, Florida legislators introduced H.B. 9 to require certain medical expenses in personal injury claims be based on certain usual and customary amounts actually received by health care providers, instead of billed amounts. The bill unfortunately did not pass during the 2020 session but I am hopeful Florida will reconsider such legislation.

The financial interest of a business that is not a party in a lawsuit should not play an outsized role in a case. It unduly increases litigation costs and hinders the parties’ abilities to efficiently resolve matters. I urge other states to consider common sense legislation like Florida’s to give juries access to critical evidence and ultimately provide for greater transparency in our civil justice system.

This piece was originally published in Medium.

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