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Third-party medical financing and phantom damages push liability costs higher

Risk & Insurance describes how third-party medical financing can inflate bills and settlement values, adding volatility that insurers are working to manage.

Reported · Written up by our desk · Liability Insurance

Third-party medical financing and phantom damages are increasingly driving the cost and unpredictability of liability claims, according to Risk & Insurance. The outlet says these practices add settlement pressure by inflating medical charges that can raise claim severity faster than broader economic inflation. Kevin LaFreniere, head of financial lines, liability and bond claims at The Hartford, explains that third-party medical financing, similar in concept to third-party litigation funding, lets outside investors financially support medical treatment tied to litigation. In many cases, the funding structure can involve medical providers billing at much higher rates than conventional insurance or Medicare, sometimes alongside questionable or excessive treatment. Risk & Insurance outlines a typical scenario in which an attorney directs an injured party to a favored medical provider, often requiring the provider to take a lien on case proceeds and deferring payment until the lawsuit resolves. The provider may then sell that lien to a funder at a discount off billed amounts, while the funder can still pursue the full billed figure from any settlement or verdict. The mechanism can also affect how damages are presented in litigation, with inflated medical bills used as evidence to increase claim values. Risk & Insurance frames phantom damages as the gap between normal medical costs without litigation and the amounts billed when a lawsuit is involved, noting that even if providers were paid less, the higher billed figures may still be presented as damages.

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