Friday, May 16, 2008
This is the fifth in a series of posts on medical malpractice litigation. Several previous posts focused on the flaws of uncertainty, delay, and high transaction costs. Next week, I will end the series with a post in which I attempt to respond to several possible objections.
What can be done about these flaws? In my opinion, Professor Jeffrey O’Connell’s early offers proposal is the best response. The mechanics of the proposal are simple: A defendant may at its option offer an injured claimant within a defined statutory period (e.g., within 180 days of a claim) a settlement of periodic payments sufficient to cover the claimant’s net wage loss and medical expenses, including rehabilitation, plus a claimant’s reasonable attorney’s fee (10% of the recovery, which reflects the reduced amount of work necessary in the shortened process). Pain and suffering is not included. No defendant is forced to make an early offer, and, if no offer is made, normal common-law principles apply as to both liability and damages. In making an early offer, however, the defendant triggers strong incentives for claimants: If the claimant accepts, that of course ends the matter. But a claimant who elects not to accept will face a higher burden of proof at trial (either “clear and convincing” or even “beyond a reasonable doubt”) and the defendant is held to a lower standard of care (“gross negligence”).
It is vital to note that the early offer must in effect provide the claimant the equivalent of a major medical/disability policy covering the claimant’s net economic losses as long as they are reasonably accrued. In other words, a defendant cannot make a lesser offer and gain the advantages of the early offer law. In this connection, once an early offer is tendered, that can be seen as imposing discipline on offerors by the transformation of the claim into a first-party one, thus subjecting the offeror to both more regulatory supervision by state insurance departments as well as claims based on bad faith for refusal to pay benefits, unlike the situation prevailing in adversarial third-party claims.
Although injury victims tendered early offers would lose their recourse to full-scale tort litigation, they would correspondingly be paid without the uncertainty, delay, and transaction costs they now face. Moreover, they would lose their recourse to full-scale tort litigation only when they are guaranteed prompt payment of their economic losses plus attorney’s fees. Thus, in return for promptly offering to pay claimant’s net economic damages, a defendant protects itself from the vicissitudes of non-economic damages. But the message to claimants is clear: “If you want more than what insurance normally pays, namely your economic damages, you had better be sure the defendant is not just arguably, but clearly very much, at fault.”
And yet that does not mean that the early offers approach is overly favorable to health care providers. First, only defendants willing to forgo obstructive defenses will be advantaged by the proposal. Second, defendants making early offers must still pay victims’ net economic losses—which will often be substantial—thereby internalizing the cost of such accidents. The proposal could also include a minimum offer of, say, $250,000 for serious injuries (carefully defined by statute) when actual net economic losses suffered, for example, by some children, homemakers, or retirees, are relatively small. Third, if no offer is made, or if the claimant, despite an offer, goes to trial and prevails, the claimant can recover pain and suffering or even punitive damages. This would mean reserving awards of such non-economic damages to cases where liability for wrongful conduct is quite clear or where a recalcitrant defendant unwisely declines to make an early offer.
O’Connell, along with Professors Kip Viscusi and Joni Hersch, performed a study of medical malpractice cases from Texas and Florida. The authors conducted an analysis of how the system would have performed if an early offers law had been in effect. Joni Hersch, Jeffrey O’Connell & Kip Viscusi, An Empirical Assessment of Early Offers Reform for Medical Malpractice 36 J. Legal Stud. 231 (2007). The savings, in both time and money, would be dramatic. Although there are a lot of variables considered, the average savings in time would be approximately two years, and litigation costs alone would be reduced, on average, between $100,000 and $200,000 per claim.