June 6, 2007 -- Health care providers could save millions of dollars and years of litigating medical malpractice claims under a proposed "early offer" statute that also benefits patients, new research shows.
U.Va. Law School professor Jeffrey O'Connell proposed the plan in the May/June 2007 issue of Milbank Quarterly, a journal devoted to issues of health policy. Under the bill, which could be adopted at either the state or federal level, a health care provider would have the option of offering an injured patient periodic payments of the patient's net economic losses within 180 days after a claim is filed. The early offer statute would guarantee coverage of medical expenses not already covered by other sources, including rehabilitation and lost wages. An additional 10 percent is payable for the claimant's attorney's fee. The early offer plan does not provide coverage for pain and suffering.
"The early offer plan has never been adopted, but until now no research has been available to show how effective it could be, not only in dramatically reducing dollars spent on medical malpractice litigation, but also in making much better use of those dollars," O'Connell said.
The current medical malpractice system lacks quick, effective resolution for patients and providers, a 2006 study by the Harvard School of Public Health concluded. Medical malpractice cases take an average five years to resolve, with one in three taking six years or more. Just as bad, the system chews up 54 percent of any compensation in legal fees.
A groundbreaking study of actual settlements under the current tort system in Texas and Florida by O'Connell and Vanderbilt law professors Joni Hersch and W. Kip Viscusi shows how both health providers and patients would benefit from an early offers program.
"If insurers had made early offer decisions based on their early appraisals of cases, 54 percent of the 1,938 claimants in the study suffering nonfatal injuries who were paid would have been tendered early offers, with savings to health providers averaging $578,788 per case," O'Connell said. "Claimants would have been paid, on average, 2.4 years faster than under tort law, with litigation costs reduced by an average of $225,500 per claim."
The study, prepared for the U.S. Department of Health and Human Services, showed that insurers' early assessments of claims' values often turned out to greatly underestimate their ultimate value, O'Connell explained. If the early offer decision were based on later estimates (just before the case was resolved), the savings would equal $1,367,000 per case, and average litigation costs would drop by $333,677. Additionally, the number of severely injured patients receiving early offers would grow from 1,055 of the 1,938 cases to 1,893.
"The same is true for fatalities and for all cases combined," O'Connell said. For example, when both fatal and nonfatal cases are considered, the average savings per case would be $241,533 based on the early reserve and $556,429 based on the final reserve, with the average litigation cost per case reduced respectively by $82,648 and $130,651.
If a claimant declined an early offer in favor of litigation, the proposed statute would raise the standard of misconduct, allowing payment only if gross, and not just ordinary, negligence, were proven. It would also raise the standard of proof itself, requiring the patient to prove such misconduct beyond a reasonable doubt, rather than by only a preponderance of evidence as required by current law.
"Although injury victims who accepted an early offer would lose their recourse to full-scale tort litigation, unlike with reform plans proposing caps on damages, claimants with an early offer would be guaranteed prompt payment of their vital economic losses, plus an amount for their attorneys' fees, all of which would benefit severely injured patients in particular," O'Connell said.
The HHS study is available at http://aspe.hhs.gov/_/office_specific/daltcp.cfm.
U.Va. Law School professor Jeffrey O'Connell proposed the plan in the May/June 2007 issue of Milbank Quarterly, a journal devoted to issues of health policy. Under the bill, which could be adopted at either the state or federal level, a health care provider would have the option of offering an injured patient periodic payments of the patient's net economic losses within 180 days after a claim is filed. The early offer statute would guarantee coverage of medical expenses not already covered by other sources, including rehabilitation and lost wages. An additional 10 percent is payable for the claimant's attorney's fee. The early offer plan does not provide coverage for pain and suffering.
"The early offer plan has never been adopted, but until now no research has been available to show how effective it could be, not only in dramatically reducing dollars spent on medical malpractice litigation, but also in making much better use of those dollars," O'Connell said.
The current medical malpractice system lacks quick, effective resolution for patients and providers, a 2006 study by the Harvard School of Public Health concluded. Medical malpractice cases take an average five years to resolve, with one in three taking six years or more. Just as bad, the system chews up 54 percent of any compensation in legal fees.
A groundbreaking study of actual settlements under the current tort system in Texas and Florida by O'Connell and Vanderbilt law professors Joni Hersch and W. Kip Viscusi shows how both health providers and patients would benefit from an early offers program.
"If insurers had made early offer decisions based on their early appraisals of cases, 54 percent of the 1,938 claimants in the study suffering nonfatal injuries who were paid would have been tendered early offers, with savings to health providers averaging $578,788 per case," O'Connell said. "Claimants would have been paid, on average, 2.4 years faster than under tort law, with litigation costs reduced by an average of $225,500 per claim."
The study, prepared for the U.S. Department of Health and Human Services, showed that insurers' early assessments of claims' values often turned out to greatly underestimate their ultimate value, O'Connell explained. If the early offer decision were based on later estimates (just before the case was resolved), the savings would equal $1,367,000 per case, and average litigation costs would drop by $333,677. Additionally, the number of severely injured patients receiving early offers would grow from 1,055 of the 1,938 cases to 1,893.
"The same is true for fatalities and for all cases combined," O'Connell said. For example, when both fatal and nonfatal cases are considered, the average savings per case would be $241,533 based on the early reserve and $556,429 based on the final reserve, with the average litigation cost per case reduced respectively by $82,648 and $130,651.
If a claimant declined an early offer in favor of litigation, the proposed statute would raise the standard of misconduct, allowing payment only if gross, and not just ordinary, negligence, were proven. It would also raise the standard of proof itself, requiring the patient to prove such misconduct beyond a reasonable doubt, rather than by only a preponderance of evidence as required by current law.
"Although injury victims who accepted an early offer would lose their recourse to full-scale tort litigation, unlike with reform plans proposing caps on damages, claimants with an early offer would be guaranteed prompt payment of their vital economic losses, plus an amount for their attorneys' fees, all of which would benefit severely injured patients in particular," O'Connell said.
The HHS study is available at http://aspe.hhs.gov/_/office_specific/daltcp.cfm.
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June 6, 2007
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