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Thursday, June 28, 2012

Early Offers

                On Wednesday, the legislature in New Hampshire voted to override Governor Lynch’s veto of the early offers bill.  Despite some imperfections in the bill, it was a good decision.  Because all of the criticism is coming from the claimants’ perspective, I specifically state that the early offers law is good for claimants.  I defended an earlier version of the bill from the claimants’ perspective here.

                In a post on Wednesday, The Pop Tort pronounced early offers “horrendous.”  Unlike the editors of many torts-related blogs, I don’t know the people who write for The Pop Tort.  I don’t always agree with their positions, but I admire their dedication to victims of tortious conduct.  This is a major reason why I want to respond to their early offers post.  I would like those typically supportive of claimants to seriously consider endorsing early offers.

                Because the bill has changed since I last defended it, I will start by briefly explaining the version that is now the law of New Hampshire.  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.  Moreover, the offer includes payment of the claimant’s attorney.  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 and pursues a tort claim, she must be awarded at least 125 percent of the early offer or have to pay the defendant’s attorney’s fees.  To ensure these fees can be paid, a bond must be posted.

                I begin by examining the specific points of opposition in the post. 

                1.            Early offers provides extremely limited compensation.

This depends on what is meant.  To be considered an early offer, the health care provider must offer to pay all economic loss plus a modest, set amount for pain and suffering.  For catastrophic injuries involving tremendous economic loss, an early offer could be millions of dollars.  I assume that what is meant is that the amounts for pain and suffering are limited.  It is true that the amounts for pain and suffering are less than are theoretically available under tort law, but compensation is much swifter and more certain.  That is the trade-off.  Moreover, empirical studies, including some specific to malpractice, routinely find that the most severely injured claimants recover only a portion of economic loss.  Thus, for the most severely injured patients, the recovery of full economic loss, which is mandatory under early offers, would be an improvement. 

Other commentators have argued 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.

In a similar vein, The Pop Tort quotes an editorial from the Union Leader complaining that early offers featured “absurdly low caps.”  Damages are not capped.  Pursuant to a cap, the claimant would still have to go through the normal litigation process.  At the end of the process, if the claimant had managed to achieve a verdict in excess of the amount of the cap, then the cap would reduce the recovery.  Instead, this is a trade-off of swift and certain recovery for economic loss and a small, set amount for pain and suffering. 

                2.            Early offers provides incentives to reject portions of the claimant’s damages.

The Pop Tort post states, “the injured patients’ ability to collect what amounts to a severely-capped compensation would be infected by conflicts of interest at every single step, beginning with allowing the medical provider to choose its own doctor to decide a patient’s damages.”  Perhaps this is what is meant by “lowballed,” which appears repeatedly in commentary on early offers (including in the editorial quoted by The Pop Tort).  It is the only definition of the term that makes sense.  A health care provider cannot “lowball” a claimant in the sense of offering anything less than economic loss plus the modest amount for pain and suffering indicated by the National Practitioner Date Bank’s severity scale.  An offer that is less than that does not qualify as an early offer and the provisions of the law would have no effect on the claimant. 

Thus, I will assume “lowballed” to mean that the health care provider will formally offer economic loss, but then reduce real economic loss because of conflicts of interest.  The law provides safeguards for that danger.  For instance, the claimant must agree to the physician suggested by the health care provider to examine the claimant’s injuries.  If no agreement is reached, the hearing officer will select the physician.  The physician conducting the examination “shall not be affiliated directly or indirectly in any way with the medical care provider alleged to have caused the injury.”  Moreover, any time a claimant requests payment of economic loss and that payment is rejected, the health care provider must notify the claimant in writing about the basis for denial and inform the claimant about the appeal process. 

Claimants have the right to request a hearing officer to resolve a dispute at any time.  A hearing officer is “a person of judicial and/or legal training, common sense, and a respect for the law, chosen by the agreement of the parties from a list of neutral persons maintained by the judicial branch office of mediation and arbitration.”  If no agreement is reached, a hearing officer is selected at random from the list.  No hearing officer may be employed by the insurance department (a change from an earlier version of the bill made to mollify opponents) or shall serve if the officer would have a conflict under the state’s legal and judicial ethics codes.  The health care provider must pay for the hearing officer and if the hearing officer determines the health care provider’s position was frivolous, he or she can force the health care provider to reimburse the claimant for the costs of the hearing up to $1,000 or, if the claimant is unrepresented, pay the claimant double the amount that was frivolously disputed or denied.

                3.            Claimants are asked to sign away their rights in a consent process that “violates even the most basic precepts of what constitutes a voluntary program.”

Contrary to this suggestion, I think New Hampshire went to great lengths to protect claimants.  Here is the process mandated by the law.  At the time the early offer is requested, the claimant is given a document that informs her that her right to seek 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.  Moreover, if the claimant is not represented by counsel, the medical provider must appoint a neutral advisor to explain the difference between early offers and the tort system.  The claimant is then given several days after meeting with the advisor to withdraw the notice of claim.  In other words, no claimant will sign the waiver without either the advice of counsel or the advice of the neutral advisor.

                4.            If the claimant requests and rejects an early offer, then he or she must receive 125 percent of the offer in the tort system or pay the health care provider’s attorney’s fees.

A penalty is needed to keep claimants from “gaming the system” by requesting an early offer without being serious about accepting it.  If claimants continually asked for and rejected early offers, health care providers would have no incentive to spend the time and effort necessary to offer them.  The alternative system would break down, and tort would be the only option for claimants.  Candidly, I would have preferred forcing the claimant to prove negligence to a clear and convincing standard, but the House rejected that idea.  Keep in mind that the claimant is only forced to pay the health care provider’s attorney’s fees after she has voluntarily requested an offer and decided she wanted more than complete coverage of economic loss, plus a small amount for pain and suffering and then failed to prove to a jury that she was damaged more than 125% of that amount (previously alleged to be extremely limited).  If the case was subsequently settled, the attorney’s fees would likely become a component of the settlement agreement.

                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.  Although it may not be for all claimants, I don’t think early offers are horrendous.  Not all tort reforms are bad.

--CJR

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Although we strongly disagree (as did NH's Governor http://www.governor.nh.gov/media/news/2012/062012-veto-sb406.htm and the Manchester Union Leader http://www.unionleader.com/article/20120627/OPINION01/706279940, among many others), we appreciate your analysis. ThePopTort.com's blog post, to which this responds, can be found here: http://www.thepoptort.com/2012/06/new-hampshires-legislative-malpractice.html ThePopTort is the blog of the Center for Justice & Democracy, of which I am Executive Director. CJ&D's web site is here: http://centerjd.org/ I testified against the earlier version of this legislation. My written statement is here: http://centerjd.org/content/joanne-doroshow-cjd-executive-director-testifies-new-hampshire-committee-condemns-unethical We do not oppose all "early offer" programs. We strongly oppose programs that tilt the legal playing field against patients, as I believe is obvious by this bill's provisions. Thanks.

Posted by: Joanne Doroshow | Jun 29, 2012 7:13:35 AM

Your #1 point is wrong. The bill does not cover "economic loss" as that term is understood in torts law. It covers "monetary expenses incurred by or on behalf of a claimant reasonably related to a medical injury and its consequences, including actual out-of-pocket medical expenses, replacement services, additional payment to the claimant pursuant to RSA 519-C:7, and 100 percent of the claimant’s salary, wages, or income from self-employment or contract work lost as a result of the medical injury."

That would sound like ordinary economic loss, but then the bill specifically excludes loss of "earning capacity." Of course, loss of earning capacity is usually the largest economic loss: when a patient is paralyzed, for example, their lost wages only goes back from the time of the injury to the time the claim is decided, but their loss of earning capacity goes into the future. For a 40 year old worker who was making, say, $50,000, if they file a claim a year after the event, their lost wages are merely $50,000, but their lost earning capacity is $1.25 million — a claim they will wholly forfeit by even asking for the early offer, because attempting litigation after the early offer is too risky.

Which brings me to point #3. Even you, a torts professor, did not understand the scope of rights the patient gives up by asking for the early offer, and we're suppose believe that regular folks will?

Posted by: Max Kennerly | Jun 30, 2012 6:33:26 AM

Thanks for writing, Joanne and Max. Max, I'm a big fan of your Penn State coverage; I'm sorry you don't reciprocate about early offers.

Your truck driver is going to recover future lost wages. Section 519-C:5 requires payment of future economic losses as they accrue. Specifically, II(b) requires future lost wages to be paid weekly and it includes a mechanism for wages to keep up with inflation.

Posted by: Chris Robinette | Jun 30, 2012 1:29:19 PM

Chris,

I rather like this blog, and I think you’re a worthy successor to Bill Childs. I just think you’re making a mistake here; it’s not that all tort reform is ipso facto bad — I can understand, for example, certificate of merit requirements — but that this particular bill is bad and deceptive. It will not work as advertised; it will help negligent defendants avoid paying sufficient compensation while enriching a couple high-volume plaintiff trolls.

Start with the basics. As we know from the 2006 Harvard malpractice study, a little over one-quarter of malpractice cases end with a result that differed from what the panel of doctors concluded, with the largest portion — 16% of all cases — involving “claims that went unpaid even though the injury was caused by an error.” We thus know that nearly one-sixth of meritorious malpractice claims nonetheless lose. Keep that in mind throughout this debate; every day, plaintiff's lawyers reject claims they think are meritorious because they think the claim does not justify the risk. Every additional threat and cost placed on plaintiffs and their lawyers will thus increase the number of meritorious claims that are rejected pre-suit by plaintiff's lawyers.

With that backdrop, the penalties for plaintiffs who do not accept the early offer should worry you greatly. If a plaintiff doesn’t accept the early offer, their claim is dead, even if it is meritorious; as mentioned above, plaintiff’s lawyers routinely reject meritorious claims because they are too expensive or risky, and the penalties in the NH bill magnify those problems. The plaintiff likely cannot file at all; the bond is too expensive. If they can pay the bond, they likely cannot find an attorney to take the case; the risk of paying defendants’ attorneys fees and costs is too high.

Can we live with that sort of “all-in” form of early offer? I believe the answer is “no,” because such a system will attract only two types of claims: claims so weak they would not have been filed, and claims where a patient was misled (intentionally or unintentionally) into entering the process. I find no great social value in either outcome; such a one-sided system that provides virtual immunity to the defendant if they merely tender a non-zero offer is nothing but a trap for unwary plaintiffs.

But let’s assume we can live with that sort of “all-in” form of early offer. Obviously, a key component is that such a system offer adequate compensation. We know for a fact that it does not offer, like you wrote, “all economic loss.” It offers nothing of the sort; it removes the largest component of economic loss (a lump sum reflecting future earning capacity) and replaces it with a system in which a claimant is supposed to re-prove their entitlement every week, with the concomitant administrative burden and risk that at some point the claim will be rejected or modified downward, and where the claimant has by definition be restricted from making any argument about individual income advancement or income advancement by their whole profession. Then there's also the time value of money: a lump sum now is obviously worth more than constantly begging for portions of that sum every week.

It’s interesting you interpreted my worker as a “truck driver.” Many truck drivers are self-employed, making their lost wages claims notoriously difficult to prove and subject to reduction or rejection by courts. The hearing examiner will most likely grab the last few years of receipts he can find and then average out the yearly income, which they’ll pay until they get tired of the plaintiff, at which point they’ll say the claim has become “earnings capacity,” not “lost wages,” and so it’s denied.

Consider also a law student who is permanently disabled by malpractice on the day of their graduation. Their “lost wages” are poor, perhaps even $0, while their lost “earning capacity” is several millions of dollars. If they take a NH “early offer,” they’ll be awarded $0 for lost wages, and be precluded from filing suit by the steep penalties for not accepting an offer.

There really is nothing good about the NH system, unless you’re a negligent defendant who wants to get out of a bad case on the cheap or if you’re a troll plaintiff’s lawyer with huge intake who wants to start throwing hundreds of weak cases at the system in the hopes a couple stick.

Posted by: Max Kennerly | Jun 30, 2012 9:53:49 PM

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