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Widener Univ. School of Law

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Wednesday, April 18, 2012

In Support of New Hampshire's Early Offers Bill

          New Hampshire has proposed an early offers regime for medical malpractice cases.  It passed the Senate and will be up for a vote in the House shortly.  Pursuant to the bill, a patient who believes she is the victim of malpractice may send a notice of injury to the heath care provider requesting an early offer.  The provider has 90 days to decide to extend an early offer and can ask the patient to undergo a physical exam.  If extended, the offer must cover all economic loss—medical bills and lost wages.  There are modest amounts of pain and suffering damages included based on classification of the injury as determined using the National Practitioner Data Bank severity scale.  The patient then has 60 days to accept or reject the early offer.  If she accepts the offer, the case is over.  However, if she rejects the offer, she must prove gross negligence to a clear-and-convincing standard in order to recover.

            The bill is based on a proposal authored by Jeffrey O’Connell, with the change of allowing the claimant, not the health care provider, to initiate the early offer process.  I endorse the change and support the bill, though a similar system could be implemented without legislation.  Criticism of the bill has come from the perspective of claimants.  I’ll try to address specific points shortly, but I want to start with the general proposition that my support for the bill is largely based on its advantages for claimants.  There are other potential benefits—savings, etc.—but they are not the chief reason I support early offers. 

            Early offers allows, but does not force, a claimant to bypass the tort system.  Tort law has virtues, but among them are not certainty and swiftness.  Because of an understandable focus on individual justice, the tort system can be very uncertain and slow, with significant transaction costs.  There are many claimants who would prefer to have their claims resolved along insurance principles—with more certain payment for economic loss, taking care of the their urgent needs.  I have sat at the hospital bed of a catastrophically injured loved one.  After his health, my main concern was that he not be bankrupted by the enormous costs of life-saving care. 

            Some claimants have the resources to wait out a five-year malpractice struggle.  Some claimants may enjoy the adversarial proceedings of depositions, interrogatories, and cross examinations.  But all do not, and early offers gives them a possible way around them, while providing for basic economic loss much more swiftly.  What follows are some objections to early offers I’ve seen in various columns and posts.  I try to respond to each. 

            1.         Early offers will incentive “low-ball” offers. 

This is the objection I see the most, and it is ambiguous.  I’m not sure if the writers mean the health care provider will try to offer less than allowed pursuant to the early offer bill or the offer will be lower than is available pursuant to tort law.  If the former, the response is that any offer less than full economic loss, plus the modest pain and suffering award, does not qualify as an early offer.  If the latter, the response is that it is true the offer is less than would be theoretically available pursuant to tort law, but it is swifter and more certain.  That is the trade-off. 

            2.         Only economic loss is available.

The latter version of the first objection blends into this objection.  Some writers add that early offers would be unfair to claimants who did not have a lot of medical bills or lost wages; regarding lost wages, this would be particularly true of children, those who are retired, and those who do not work outside the home.  The response to this point is that early offers may not be beneficial for everyone.  If the claimant does not have a lot of economic loss, there may not be a pressing need for a financial recovery.  Under such conditions, the claimant may decide the better course is to pursue a tort claim.  Although, it may be significant to claimants who do not work outside the home that “replacement services” are available as economic loss.

            3.    Claimants will be suckered into signing up for the early offer.

The concern here is that claimants will be duped into accepting an early offer and waiving their tort rights by health care providers.  One writer asked why a warning was not required.  The response is that a waiver and warning are required.  Every claimant, before initiating the early offers process, must sign a waiver that informs the claimant that legal rights, including the right to a jury trial, may be affected; that there is a right to consult an attorney (who will be paid by the health care provider in the event of an accepted early offer); that the claimant is free to pursue a tort claim if no early offer is made, along with other pieces of information.  The following language is also included:

I UNDERSTAND THAT WHEN I SUBMIT A NOTICE OF INJURY AND SUBSEQUENTLY RECEIVE AN EARLY OFFER, I WILL HAVE RELINQUISHED MY RIGHT TO SUE FOR ORDINARY NEGLIGENCE, BREACH OF CONTRACT OR WARRANTY OR ANY OTHER CLAIM CONNECTED TO THE INJURY DESCRIBED IN THE NOTICE OF CLAIM.  Moreover, if a claimant who submits a notice is not represented by counsel, the health care provider must provide a neutral mediator, at the health care provider’s expense, to offer assistance to the claimant.

            4.         Health care providers can already make offers to settle.

This is true, but they often do so slowly, as is obvious from the average length of malpractice cases.  The reason is that both sides have incentives to posture throughout the process of resolving the dispute.  By offering health care providers the incentive of the higher standard and lower transaction costs, more offers will be made and much more quickly.

            5.         Early offers would shift the costs of caring for the injured from the wrongdoers to state and local government.

Costs of care are economic losses, which are, by definition, covered by early offers.  The danger of shifting costs to the government is much more concrete if the claimant loses a tort case.

            There are two objections that concern me a little more, but I think these risks are acceptable given the potential benefits: 

            6.    Discovery is one-sided.

My friend Alberto Bernabe points out that the health care provider is able to obtain discovery before the claimant.  It is necessary that a health care provider perform discovery prior to making an early offer.  If the claimant wants the potential benefits of the early offer, she will have to make the choice to submit to discovery.  However, the outcome and any other writings, evidence, or statements made or offered by a party or party’s representative during negotiations of an early offer are not admissible in court.  A health care provider could also potentially be required to release all medical records to the claimant at the time of the early offer negotiations.

            7.         Disputes are resolved by the Department of Insurance.

The most common type of dispute would likely be whether an item counts as economic loss.  Although there may be hard cases, calculation of economic loss is one of the simpler issues in a tort case.  The main objection seems to be that the Department of Insurance in New Hampshire is financed by insurers.  I have not heard any direct claims that the Department is biased, and I have no reason to think it is, but a neutral arbiter is crucial to the process.

            Many of the objections seem to implicitly contrast early offers with an idealized tort system.  There is much to admire in tort law, but it is far from perfect.  The alternative to early offers is not recovery in every case in which it is deserved, with the exactly proper amount of pain and suffering damages, within a reasonable amount of time, and at an efficient cost.  Instead, recent studies show that one in six cases involving legitimate medical error received no payment and, for those that did, 54 cents out of every dollar went to pay the costs of operating the system.  The average malpractice case lasts approximately five years; New Hampshire’s system is a little quicker (about four years).  However, that is a long time to wait when medical bills and lost wages accrue.  Moreover, approximately 80% of malpractice trials nationally are won by health care providers; the New Hampshire figure is approximately 65%.  Although claimants with minor injuries often receive several times their economic loss, claimants with major injuries may not even recover the full amount of economic loss.  Why not provide claimants an alternative?  If a claimant, for whatever reason, prefers the tort system, it is still available.   

--CJR

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Comments

Chris, isn't the fear giving legitimacy to early settlements that occur before anyone knows the facts and the merits of the case except the doctors and/or hospitals who are going to cherry pick cases that really have value. How about giving people the ability to back out and pay back whatever they have taken out?

Posted by: Ron Miller | Apr 20, 2012 11:06:46 AM

Hi Ron, I think there are several responses to your legitimate concern. One is that cherry picking goes on now without the claimant necessarily getting the security of full coverage of economic loss. Another is that claimants should evaluate their options before filing a request for an early offer. It is true that the health care provider has an information advantage in the form of the medical records, but the claimant has an information advantage in the form of the injury itself. Moreover, I would be in favor of allowing the claimant access to the health care provider's records prior to the filing of the request for an early offer. However, many medical cases are extremely tricky and even after years of discovery, what happened and how much is it worth is still debatable. This last point leads to the third response. There are claimants who would be happy to trade a slow, contingent, hypothetically full remedy for a swift and certain remedy that covers all economic losses and provides a modest amount for pain and suffering. These claimants do not have that option under the current system. Unless the health care provider has an incentive to offer economic loss, they won't do so under the current system (and it takes an average of 5 years to resolve a claim). Early offers gives them the incentive to make the offer without being seen as signaling weakness. That's one reason that letting a claimant back out of the offer won't work. The health care provider has got to have an incentive to make the offer.

Posted by: Chris Robinette | Apr 23, 2012 8:46:17 AM

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