(Published in the Denver Business Journal)

This year, the Colorado General Assembly can bring common sense back to the courtroom by ensuring that personal injury lawsuits do not needlessly inflate damage awards with “phantom damages.”  House Bill 1106 would overturn a controversial decision from a divided Colorado Supreme Court last November.

Anyone who has received a bill from a doctor or hospital knows that the amount of the initial bill is more than what will ultimately be paid by your health insurance company.  Hospitals and other health care providers routinely agree to accept payments from insurers that are less than the billed amount.  However, the 4-to-3 majority decision in Volunteers of America vs. Gardenswartz, decided by the Colorado Supreme Court late last year, requires defendants to pay damages above and beyond the actual cost of the medical bills.

The dissenting opinion, written by Justice Nancy Rice, argued sensibly that this distortion of the existing law would allow plaintiffs to “recover nearly any theoretical damages.”

“The majority reconstitutes the same type of double recovery that the legislature intended the statute to prevent,” Rice wrote, calling the decision “contrary” to the “legislature’s clear intent (and) the statute’s plain language.”

Allowing the court’s newly-established precedent to stand will result in more litigation and higher insurance premiums – neither of which Colorado’s economy can afford.  Colorado Civil Justice League, the state’s leader in the fight against lawsuit abuse, reviewed a sample of recent court cases in which the plaintiff sought to recover the higher “billed” amounts.

This analysis found that billed amounts averaged more than four times more than the amount ultimately paid to satisfy all medical costs.  In these cases, phantom damages averaged $352,000 per case.  Such unjustified windfalls create an incentive to litigate for personal injury lawyers, who typically take 33 to 40 percent of their client’s award.

If this court decision is allowed to stand, medical malpractice insurance premiums paid by Colorado doctors are conservatively estimated to increase upwards of 10%.  At a time when policy makers are trying to expand access to healthcare, such an increase in costs will hurt local doctors like Dr. Brian Harrington – the only family physician in his northwest Colorado community delivering babies.  Such doctors are between a rock and a hard place, which is why a sizeable insurance premium increase could well drive additional doctors out of practice or to less risky specialties.    

HB 1106 applies only to health care costs that have already been paid and therefore have already been objectively valued.  The bill doesn’t limit recovery for other types of legitimate damages.

Trial lawyers argue that limiting medical costs to the amount actually paid will reward the wrongdoer and punish the victim who had the foresight to purchase insurance.  That’s faulty logic.

We purchase insurance to cover the cost of certain circumstances that are unforeseen, unfortunate and usually very expensive.  No one buys insurance with the intent of one day winning the “litigation lottery.”  In fact, most consumers appreciate it when insurers negotiate a discount because they know it keeps premium costs down.

In many injury cases, both parties are insured.  In fact, it’s not difficult to envision the coincidence of the plaintiff and defendant both insured by the same company.  It makes no sense for the insured victim’s costs to be paid at the lower rate but the insured defendant to pay the higher rate.  Doing so will make insurance costs more expensive for everyone.

Finally, opponents contend that HB 1106 tells doctors and other medical providers how much they can charge.  Again, this argument is unsupported by the facts.

HB 1106 addresses recovery costs from accidents that are being litigated in court – long after most medical costs have been paid and the actual costs established.  In these cases, the bill simply precludes the plaintiff from turning a profit from his injuries.  If actual costs have yet to be established, the bill merely echoes existing law that allows for “reasonable” charges.

By passing HB 1106, the legislature has an opportunity to clarify the statute and preserve a fair and sensible system of civil justice.  If we fail to act, the court’s newly-established precedent will inevitably result in more litigation, more lawsuits and higher insurance costs for everyone from families and small business to doctors and hospitals.

Rep. Bob Gardner (R-Colorado Springs) is chairman of the House Judiciary Committee and sponsor of HB 1106.