Iowa “Phantom Damages” Law Ignores Corporate Greed and Human Losses

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    Earlier this week, Iowa Governor Kim Reynolds signed a bill that prevents plaintiffs who file personal injury or medical malpractice suits against health care providers from collecting so-called “phantom damages,” or damages above and beyond what the plaintiff has actually paid or expects to pay for treatment in the future.

    The legislation is meant to prevent plaintiffs from collecting a “windfall.” Proponents of the legislation painted a picture of greedy patients and their lawyers filing frivolous lawsuits meant to make the patient wealthy, rather than seeking just compensation for real injuries. Although this picture has long been etched into the popular imagination, it is not reality.

    “Under the new law, evidence offered to prove past medical expenses is limited to the following: amounts actually paid to satisfy medical bills, regardless of payment source; and amounts actually necessary to pay bills incurred that have not yet been paid,” says an article on the legal news site “This cannot exceed the amount that could be satisfied by utilizing the claimant’s health insurance, regardless of whether such insurance is, or will be, used to satisfy the bills.”

    However, this method of calculating damages is faulty for a few reasons. For starters, it can be difficult, if not impossible, to accurately calculate how much a plaintiff will pay in future medical bills related to their injury. For instance, a baby with a birth injury might suffer complications later in life that were not taken into consideration when the “amount actually necessary” to cover future medical bills was calculated.

    Also, the bill prevents plaintiffs from seeking damages reflected by the amount the medical provider charged. Under the new bill, plaintiffs can only collect the amount that was actually paid, either through insurance or out-of-pocket, to satisfy the bill. Lobbyists for doctors, hospitals, and insurance companies argue that the amount a hospital or doctor charges is often much greater than what the patient ends up paying.

    By making this argument, those who lobby against “phantom damages” are unwittingly hinting at a problem much bigger than an injured patient collecting too much money in compensation: hospitals and medical facilities are grossly overcharging for their services. In a bombshell article titled “Bitter Pill: Why Medical Bills Are Killing Us,” which ran in TIME magazine in 2013, reporter Steven Brill exposed how health care providers regularly overcharge patients and private insurance companies by 200 to 400 percent the actual cost of medical care—in some cases, by as much as 1,000 percent.

    Brill investigated why one patient was billed about $160 for a Complete Blood Count test, which has a real estimated value of $11.02 in 2013. To explain the grossly inflated cost, the hospital deferred to its “chargemaster,” a master list of prices for various procedures, tests, and medications. Every hospital has one—and most chargemasters set the price at two to ten times the actual value.

    “Stamford Hospital’s chargemaster assigns prices to everything,” Brill said in the article. “It would seem to be an important document. However, I quickly found that although every hospital has a chargemaster, officials treat it as if it were an eccentric uncle living in the attic. Whenever I asked, they deflected all conversation away from it. They even argued that it is irrelevant. I soon found that they have good reason to hope that outsiders pay no attention to the chargemaster or the process that produces it. For there seems to be no process, no rationale, behind the core document that is the basis for hundreds of billions of dollars in health care bills.”

    To avoid paying the exorbitant prices listed on the chargemaster, insurance companies—or in some cases, a patient paying out-of-pocket—has to negotiate with the hospital billing department for a lower price. Some health care facilities agree to reduce the initial bill, but many others do not. The discounted amount varies greatly depending on the medical condition and the individual provider or hospital.

    When the cost of past and future medical expenses is so variable, and so inflated, how is a jury supposed to properly calculate the cost of bills for future treatment? When one takes this into account, those “phantom” damages don’t seem so invisible after all.

    Instead of discouraging frivolous lawsuits, limiting the amount of damages plaintiffs can collect often harms patients and consumers. As Simon Greenstone Panatier, a trial attorney in Texas, wrote about product liability tort reform, “Corporate wrongdoing is rampant in our society. Tort law is one of the few real incentives big corporations have to produce products that are safe—if a company knows that a product it manufacturers is deadly, and that a certain percent of people that use the product will be injured and could potentially sue for millions of dollars each, they are motivated to protect themselves and therefore the consumer.”

    The same can be said of big hospital chains and other health care providers, who are already known to grossly overcharge patients, especially those who have inadequate or no insurance coverage. If these same providers seriously injure a patient, they should pay the price.

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