'Medical funding companies' inflating insurance payouts

(The Center Square) − In a House Joint Insurance Committee hearing on Friday, James Prather detailed an industry which is working to inflate insurance payout claims by hundreds of thousands of dollars.

“People will say to me ‘there’s no way this is actually happening’,” Prather told The Center Square. “Yes, It’s how it is done.”

He's an attorney for Galloway, Johnson, Tompkins, Burr and Smith.

In the “Operation Sideswipe” case, in which Prather helped defend a trucking company, four women received treatment through a litigation, or, “medical” funding company. These companies cover medical costs upfront and seek reimbursement through legal settlements.

Those companies billed the defendants $720,000 despite actual costs being only $240,000. According to Prather, Louisiana’s legal environment makes these sorts of companies – which Prather called “venture capitalist” – particularly attracted to Louisiana because of the collateral source rule.

“They are putting out these figures which are not real, in the sense that nobody is actually paying those figures,” Prather said. “They're doing it because they then get an assignment to recover that full billed amount.”

Louisiana has the highest auto insurance rates in the country, and many point to the state's legal and medical billing practices as a major contributor to the lack of auto insurance companies who write policy in Louisiana.

Prather told The Center Square that third-party financing companies absolutely discourage insurance companies from selling insurance in Louisiana.

“We have an availability problem because of the legal environment in Louisiana,” said Tim Temple, commissioner of the Louisiana Department of Insurance.

Randy Guillot, president of Triple G Express, a trucking company from New Orleans, also testified to the issue of third-party financing.

Following a minor sideswipe incident where his company was found at fault, what could have been a straightforward claim spiraled into a complex and costly legal battle. The plaintiff, instead of using her medical benefits, sought treatment from Alliance Treatment Facility, a provider that also acts as a third-party litigation financier.

According to Guillot, the injuries presented by the plaintiff were not substantiated by the minimal damage from the crash, but Alliance billed as if they were far more severe, driving up the total payout.

“I paid roughly double what my defense counsel said I should have paid,” Guillot said.

According to Guillot, Alliance “popped up” after the Louisiana Civil Justice Reform Act of 2020.

“There’s been an industry that popped up in relation to that legislation,” Guillot said.

According to the National Association of Insurance Commissioners, Louisiana’s rate of accidents with bodily injury claims sits at 2.4%, far above the national average of 1%.

In 2020 alone, Louisiana insurance companies paid out $933 million in bodily injury claims, more than double Alabama’s $466 million, despite both states having similar populations, according to Sen. Kirk Talbot, R-River Ridge.

“I don’t see any justification for why we have to pay the highest auto insurance rate in the country,” Temple said, underscoring that inflated claims payments are directly driving up premiums.

While the number of fatal accidents and miles driven are comparable between the states, Louisiana’s legal environment results in far more injury claims and, by extension, higher costs for insurers. The problem, according to Temple, isn't just about the inflated claims – it’s also about the lack of competition.

Temple verified that companies are regularly requesting rate increases to keep up with rising claims payouts.

With fewer insurers willing to write policies in Louisiana, businesses and residents alike are left with skyrocketing premiums. “Reduce litigation, reduce accidents,” Temple said.