As states consider lawsuit abuse reform, addressing phantom damages is a key component to lowering costs. Phantom damages occur anytime lawsuit recoveries are calculated using the medical costs billed versus the medical costs the patient actually paid. 

As the the American Tort Reform Association explains, phantom damages are one of the primary contributors to growing costs: 

A variety of civil justice abuses contribute to the growing litigation costs, none more so than judges permitting “phantom damages” to be introduced in their courtrooms. “Phantom Damages” 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.

The troubling trend of phantom damages has only increased in recent years because of the expanding use of letters of protection (LOPs) and medical liens in personal injury cases. According to the Wall Street Journal:

Some doctors treating accident victims are taking a page from plaintiffs’ lawyers, agreeing to get paid only after a lawsuit wraps up. The arrangements can mean higher fees for doctors than they would get from insurance companies—although critics say it can expose victims to large bills if their lawsuits don’t succeed. So-called lien doctors have existed in parts of the country for years. But a spate of legal and legislative changes has led to a proliferation of the practice in California and other states, including Florida, Colorado, Texas and Georgia, lawyers say. .. Defense lawyers and those in the liability insurance industry argue they drive up litigation costs.

The R Street Institute’s Jerry Theodorou highlights that phantom damages are a ripe area for lawyers to engage in fraud and abuse, including requiring victims to undergo unnecessary procedures:

There may be fraud as well in cases where expensive soft tissue procedures, such as laminectomies, spinal fusions and imaging are billed but never performed. Other abuses involve the performance of unnecessary procedures to drive up the billing.

As states move forward with meaningful legislation to end lawsuit abuse, tackling the problems associated with phantom damages can help protect consumers currently undergoing treatments that leave them worse off and taking on loans that leave them in debt so that lawyers, medical providers, and loan companies can profit.