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VI
No-Faull Insurance
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Administrative and "No-Fault" Systems for
Compensating Medically Related Injuries
Edward A. Dauer
A committee of the Institute of Medicine (IOM) that has been examining
the history of HIV and the blood supply recently issued a report which
included among its several recommendations the suggestion that"The federal
government should consider establishing a no-fault compensation system for
individuals who suffer adverse consequences from the use of blood or blood
products."'06 Unlike first-party no-fault insurance, a no-fault compensation
system is a complex and in many ways controversial idea. In the special
setting of medical practice injury such as infections associated with blood
transfusions, it is particularly interestin~though in some quarters of the legal
profession no less controversial.
The IOM's recommendation came without discussion, so far as I can tell
from reading the report, but it is not an unwelcome idea. There has already
been quite a bit of activity in that area, including a soon-to-be-implemented
experiment in blood banking itself. Before addressing that program, however,
and other particular examples, I would like to begin with an overview of what
no-fault compensation programs are about and why they may be of interest to
us.
No-fault programs are systems for compensating people who have been
injured, and are offered (or required) in lieu of or as alternatives to the
conventional civil liability system. They are designed principally to respond
to certain diseconomies that many believe are endemic to the legal system as
it currently exists. To help you appreciate this more graphically, I would like
to share with you a chapter of the cultural history of American civil liability
law. It is a story which I believe was first recounted by Charles Lamb 200
years ago in his Essays of Ella.
Reinstitute of Medicine (1995). HIS and the Blood Supply: An Analysis of Crisis
Decisionmaking Washington, D.C.: National Academy Press.
157
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BLOOD AND BLOOD PRODUCTS: SAFETY AND RISK
At one time in early human history people ate food without cooking it.
They would gather fruits and vegetables and eat them just as they found them.
Every now and then they would venture into the forest where they might find
an animal, usually a small pig, which they might capture and kill. They
discovered that eating these animals freshly killed was not very tasty, and, they
slowly realized that it had some adverse health effects. One day there began
by accident a ferocious forest fire that roared through the surrounding woods,
destroying tens of thousands of acres and all of the creatures that had lived
there. When the fire was finally out, the people wandered into the charred
woods and saw that as a consequence of the fire some of the wild pigs had
been roasted. They tasted them, and found them to be much tastier than they
were before. There also seemed to be fewer of the adverse health effects.
From that day forward it therefore came to be that whenever someone had a
yen for barbecued pig, they would start a forest fire. Thus, the original
efficiency model for the American litigation system.
The formal litigation system is an adversarial process that generates
decisions by nonexpert fact finders. It has essentially five jobs to do, each of
them very labor intensive. One of the jobs is to investigate the facts of the
incident, to assess "causation," i.e., did the injuries and consequences
complained of flow from the error or omission alleged? Second, and more or
less simultaneously with determining causation, the legal system investigates
the relevant history both to determine what happened and to characterize what
happened by comparing it with the relevant standards concerning what should
have happened. If the historical behavior did not meet the required standard,
it can be labeled as having been "negligent," and thus the defendants are
determined to have been at "fault." This too is a very labor-intensive
investigation.
Third, if both negligence and causation are found, there is another
investigation of the facts about the injury and a prediction about the future, to
determine the measure of what we call damages. This is the gross amount that
the plaintiff will recover from the defendant. It is in fact a best guess about
a future of medical care and disability losses that is, in the conventional trial,
never tested by the reality of that future.
In particularly egregious cases there is a larger social function, in which
the legal system considers the possibility of punishing the parties at fault and
deterring such faulty actions by them and others like them through the
imposition of punitive damages. This requires yet another set of
investigations, calculations, and measurements.
The legal system's fifth task, in addition to all of the preceding, is to
administer the forum and the mechanisms by which people who do not want
to cooperate in addressing the matter or who do not want to share the
necessary information can be forced to do so. And it provides the arena in
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NO-FAULT INSURANCE
159
which all of these functions are managed. These five are the outputs these
are what the litigation process does. These jobs and their counterparts in a no-
fault system can be summarized in a simple table (Table 8~.
TABLE 8 Functions of Litigation and No-Fault Systems
Litigation
No-Fault System
Through an adversarial process,
presided over by a nonexpert fact
finder
1. Investigates the facts of the
incident, to assess"causation."
2. Determines the relevant standards,
to establish "negligence."
3. Investigates the facts of the injury
and predicts the future to determine
the measure of"damages."
4. Considers the possibility of
punishment through "punitive
damages."
5. Provides the forum and the
mechanism to require disclosure of
information and to enforce the result.
Through a process that is more
administrative than adversarial and
that is managed by experts,
1. Investigates causation or, for
certain injuries, presumes it.
3. Finds damages from a table of
. . . . ~ .
Injuries or on an as-lncurre basis.
5. Typically establishes nonlitigation
system to handle disputes; disclosure
of information by agreement.
No-fault systems look very different. They are typically (though not
always) administrative rather than adversarial. They are usually managed (and
the decisions are made by) people who are expert in the specific problems
being reviewed. They do less than litigation does.
In a no-fault system causation is retained. The question is, "Did this
action cause that damage?" If the answer is yes, the next step is to calculate
the compensation, which in some systems (such as workers' compensation) is
done by looking them up in a table of injuries rather than by doing
individualized adjudications. While such "scheduled benefits" are not highly
individualized, the process is certainly more efficient. A second source of
efficiency is the "pay-as-you-go" approach, in which rather than awarding the
claimant a sum based on a once-for-always guess about the future, the system
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BLOOD AND BLOOD PRODUCTS: SAFETY AND RISK
may elect to pay for medical care and disability losses if, as, and when they
arise. Increased accuracy can be achieved this way, and thus a higher degree
of efficiency in the application of the available compensation fiends.
Finally, as to the fifth job, in many no-fault systems the exchange of
information is done by consent rather than by decree, and the enforcement of
this exchange can be achieved in whatever way is necessary.
The ambition of a no-fault system is in large part to eliminate litigation's
enormous processing costs by eliminating some of the most labor-intensive
aspects of what litigation generally does. We learned, for example, as we were
litigating asbestos injuries that only about 40 cents of each dollar spent in
litigation went to compensate the plaintiffs; the other 60 cents went to
overhead. Administrative systems, by contrast, generally operate with a 9 or
10 or sometimes 20 percent overhead ratio. Thus, in an appropriate setting,
one-half to two-thirds of the operating costs can be saved by eliminating some
of the jobs done by litigation.
A no-fault system does other things as well. It decouples the right of
compensation from the determination of medical error. The negligence system
puts those two together, saying that unless the physician or health care
provider made a negligent mistake, this injured person gets nothing. If there
was a negligent mistake, this other person gets paid. It is charged, at least,
that this linkage results in "defensive medicine" as often as it results in
effective deterrence, another inefficiency in the process. Table 9 summarizes
some of the other characteristics of no-fault systems and litigation, again as
seen by an observer who is an acknowledged fan of the concept. Perhaps
needless to say, not every trial lawyer would agree with this way of displaying
the comparison.
There are a number of distinctions between litigation and no-fault or
administrative systems. One is that in litigation the amount of compensation
is a prediction not corrected by the later reality. In most trials, you only go
to court once. Juries will tend to overcompensate injured plaintiffs because
they do not know what is going to happen to them in the future. In an
administrative system, properly structured, compensation can be triggered by
actual needs as they occur, and therefore, the efficiency of expenditures can
be higher.
Litigation is also highly disruptive and creates a daily drumbeat of news
that is seldom very productive. On the other hand, the public nature of
litigation sometimes has advantages. No-fault systems, when they operate
privately, may not reveal for public scrutiny errors, problems, and questions
that would in fact be revealed and investigated publicly if they were grist for
the mills of the courts. There is a trade-off to be considered there.
However, litigation analyzes medical questions in an adversarial setting
rather than in a scientific setting. No-fault systems typically use expert
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NO-FAULT INSURANCE
161
decision makers rather than the lay juries of the legal forum, and may gain
some accuracy if not authenticity with respect to issues such as causation in
trying to reach its adjudications.
TABLE 9 Selected Characteristics of Litigation and No-Fault Systems
. .
Litigation
No-Fault System
.
Quantum of compensation is a
prediction, not later corrected.
Process is inefficient, public, and
disruptive.
Analyzes medical and scientific
questions in an adversarial rather than
scientific venue.
Compensates far fewer than the
number injured negligently or not.
(Over~compensates some who have
no compensable claim.
Linkage to deterrence and quality of
care is uncertain.
Adverse public and professional
effects encourage "defensive"
behaviors.
Compensation can be limited and
focused.
Process is more efficient, but there is
less public scrutiny.
Can use expert decision makers as to
relevant issues.
Will compensate many more than a
fault-based system.
Claims severity declines, but claims
r
frequency rises.
Linkage to patient safety systems is
different.
Deterrence may be intact, since the
relationship between costs and errors
is more accurate.
In addition, litigation makes two kinds of errors. First, the number of
people who are negligently injured and who are compensated through the tort
system is the minority. Most negligently injured people are not compensated
by the tort system at all. On the other hand, about half of the people who do
recover damages from the tort system shouldn't have, if measured by the
standard of negligence. The reason for this is that the process allows for
bargaining: "I won't sue you if you give me X dollars." Thus, we end up
with both kinds of errors at the same time undercompensation through the
cost-barriers to meritorious claims and overcompensation through the nuisance
potential of nonmeritorious claims. This also helps to make the efficiency of
compensation very low, and particularly so in medical injury cases.
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BLOOD AND BLOOD PRODUCTS: SAFETY AND RISK
When we shift to a no-fault system, the number of people who are
compensated rises. We get many more claims than the fault-based system
does. Analysts refer to this as an increase in "frequency." However, average
claims "severity" tends to decline, and thus, the net indemnity cost what we
pay for compensation-may not actually rise at all. The savings devoted to
paying more claims come from the reduction in the number and size of
"outlier" awards and in the reduction in the costs of processing.
With respect again to litigation and the linkage between liability and
deterrence, the question is whether doctors behave better if they are concerned
with being sued. The evidence is quite doubtful. One of the things that we
do know is that fault-based liability tends to distort behavior as the
practitioners become concerned with doing things that will help to win later
lawsuits as well as things that will help to avoid errors. Patient safety may not
be enhanced by fault-based liability as much as by, in effect, strict
liability.~07 A no-fault system sharpens the deterrent effect, it has been
argued, rather than removing it, as the practitioners now become responsible
for all adverse outcomes caused by their acts rather than being liable for only
those adverse outcomes that are capable of being proven negligent. Thus, I am
not convinced that we will reduce patient safety if we move away from
fault-based liability.
In no-fault systems the linkage between patient safety and compensation
i' deliberately undone. Patient safety can then be examined through devices
that the medical establishment thinks are appropriate, while compensation is
taken care of independently of that. No-fault systems can be created in any
of a number of ways, as Table 10 suggests.
One way is by statute, of which an example is the National Vaccine
Program. Virginia and Florida have statutory no-fault systems that pay
compensation in cases of neurological injuries to neonates. The federal Black
Lung Program for miners is also a no-fault system. Worker's Compensation
is probably the best and the most common example, and an example of a
process even with all of its much-heralded flaws that operates on a cost
ratio of 20 percent or so, compared with the tort system's 50+ percent.
Several European countries have made payments to hemophilia patients
infected with HIV through Factor VIII, either through legal enactment or
simply because they are all part of the public health system. These examples
tend to be quasiadjudicative systems that operate on the basis of schedules of
benefits. They are very focused, limited applications. Typically, negligence
is irrelevant.
There is a considerable economic literature on this subject, much of it stemming from the
work of Ronald Coase and others, who have argued that in a transaction cost-free world, the rule
of liability does not matter. Unfortunately, the world is not transaction cost-free.
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NO-FAULT INSURANCE
163
TABLE 10 Some Types and Examples of No-Fault and Administrative
Systems
Types Examples
Statutory
Judicial
National Vaccine Program, Virginia and Florida Neurological Birth
Injury, Miners' Black Lung, Workers' Compensation, European
Hemophilia Payments (ex gratia or through public health financing
system), Utah and Colorado Initiatives
Quasiadjudicative systems, tables of benefits, very limited
applications. Negligence is typically irrelevant.
Dalkon shield, Agent Orange, DDT, milk-borne Salmonella,
Asbestos
Arise typically in mass disasters; born from class actions or
bankruptcy plans; usually follow a period of intense litigation.
Contractual High school sports injury insurance and other private arrangements
Typically avoid public litigation; may or may not address fault;
some use tables of benefits.
There is a second form of no-fault that occurs in cases of mass or serial
injuries from a single product or event, usually after a period of intense
litigation through which the participants have figured out, by living through the
early cases, where the later cases are likely to come out if they go to court.
The early cases, to be candid about it, set the "market values" around which
the later cases can be more efficiently settled. These are no-fault in the sense
that they are class settlements in which the issue of fault is by agreement made
irrelevant to individual cases. Some examples are the Dalkon shield, Agent
Orange, two incidents involving DDT, and some asbestos cases. What
happens in these judicial examples is that eventually the combatants realize
that the amount of money spent to litigate later cases is being wasted that
there is a certain amount of money that is either going to go to the claimants
or to the lawyers. Thus, we have examples of product-specific no-fault
programs emerging from the courts and some from judicially approved
settlements of class actions.
There are, in addition, some contractual, private programs. These are not
arbitration programs, like Kaiser's, in which negligence is still relevant, even
though the change in the forum may be quite radical. These are programs in
which the sponsor has determined that it will pay for all losses caused by its
acts, without regard to the legal standard of care. The high school sports
injury program is one in which a guarantee is made that if a high school
athlete is injured while playing football or other sports, an insurance policy
arranged for by the school system pays his actual medical and disability costs,
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BLOOD AND BLOOD PRODUCTS: SAFETY AND RISK
without regard to negligence and in lieu of an action in the courts. This occurs
not by operation of law but simply by private contract.
There is an advantage to embracing no-fault by contract, as well as a
number of disadvantages. This, however, can better be examined in the
context of some specific kinds of programs rather than by way of a general
overview.
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The Colorado and Utah Models of
Compensating Patient Injury
Mason Howard
I am going to describe what is happening simultaneously in Utah and
Colorado, aiming toward legislative creation of a sole-remedy administrative
system for compensating patient injury. This effort comes from looking at our
own experience in Colorado and also looking at the work of the Harvard
Public Health School commissioned by the state of New York and published
in 1990 under the title of Patients, Doctors and Lawyers, Patient Injury
Compensation,Malpractice Litigation.
The Harvard Public Health School study demonstrated that the inpatient
injury rate, as documented from the hospital record, was 4 percent in the state
of New York in 1984. About one-quarter of those were due to provider
negligence that was also documented in the medical record.
People have taken this number and used it variously. Some public
interest groups have advertised that we kill more people in hospitals than we
do on the highways. I am not sure that is an accurate reflection of what that
study says, but a 4 percent injury rate and a 1 percent negligence rate is not
a goal we ought to be striving for. I think we ought to be looking at something
better than that.
What they did in New York was to compare the documented injuries in
the medical record with the litigation files in that state for 1984. They found
that of the people who were injured with no demonstrable negligence, only
10 percent ever made any monetary recovery from the court system, and of
those who were injured with documentable negligence in the record, only 20
percent made a monetary recovery. Overall, of all the people and records
studied, only 15 percent made some kind of recovery. The results speak to the
vast cost and inefficiency of the system.
If we talk in Colorado to the licensure authorities of the health care
system, it is the feeling of the people who operate these programs that through
all the mechanisms that are now available we find about one-third of the
substandard medical practice that is going on in Colorado. That includes
165
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BLOOD AND BLOOD PRODUCTS: SAFETY AND RISK
malpractice litigation, patient complaints, hospital disciplinary actions, and so
forth. Thus, two-thirds of the substandard medical practice that is occurring
goes undiscovered. In Colorado in 1995, we will collect $47 million Tom the
75 percent of the physicians who must buy insurance.
In Colorado we have the classic tort reforms that have occupied the last
20 years of state legislative activity with $1 million cap on recoveries,
including noneconomic damages. Although we have the best tort reforms in
the country, it still costs 4,000 doctors $47 million to fund their malpractice.
In the New York study, the Harvard estimate was that in a year in which
the providers paid $1.2 billion in premiums for their liability insurance, it
would have cost about $900 million to pay all of the people who were
projected to have been injured in that state in that year. That leaves enough
of a cushion, if those numbers are anywhere nearly accurate, to run the system
on the basis that most state workers' compensation companies run, which is
with about a 20 percent overhead.
The system that we envision and that we hope will become a sole remedy
for compensating medical injury in the state of Colorado will be three pronged.
The first thing that will occur is a very simplified one-page application process
on the part of the patient: "I, John Doe, think I was hurt by this medical
person on this date in this facility."
Mandated provider reporting of the injury will produce this patient
complaint. This will lead to three things: first, compensation of the patient on
a net out-of-pocket cost basis; second, an enhanced system of provider
discipline; and, third, risk management not oriented toward avoiding successful
malpractice litigation but oriented toward avoiding injury.
Compensation would include net out-of-pocket costs, lost wages, future
health care costs, rehabilitation, and possibly household production. No
compensation system currently addresses this issue of lost but previously
unpaid household production. That may be difficult, particularly if we look
at the potential costs, which may blow the affordability of such a system right
out of the water and make it unworkable.
We are not adequately disciplining physicians. One of the reasons is that
we have such a terrible system of finding the problem. As I mentioned earlier,
the licensure authorities believe they find about one-third of the things that
happen through any of the various existing reporting mechanisms. Our system
provides the potential for a 100 percent screen if we assume that we can get
100 percent of the people who sustain an injury to report it and/or have their
providers report it. In the proposed system every complaint would be
investigated and the results would automatically be forwarded to the licensing
authority.
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NO-FAULT INSURANCE
167
It is important to keep investigation as an element of this for two reasons.
First, it is a societal issue that improves the system that we have, and second,
it retains the possibility of the deterrent effect that is found in the tort system.
By creating a central database that is based on 100 percent of screened
injuries by location and provider, this system allows risk management efforts
to focus on improving the quality of medical care rather than simply avoiding
successful malpractice litigation.
We believe, based on the work done in New York by the Harvard School
of Public Health, that there are already enough premium dollars in Colorado
to fund this system if we take out the litigation costs that in Colorado now
consume about 50 cents of every premium dollar. Then the providers
themselves can provide enough funding for this that it covers both the
indemnity costs and the operational costs.
We now do a very good job of experience rating physicians on a
specialty-oriented basis. It could be even better if we knew about all the
injuries that occur in the state. At some point, if this system is good enough,
we may be able to request that the state provide some of the costs through the
general fund.
The plan both in Colorado and in Utah was to do a study very similar to
what was done in New York, and that study has been done. After the data are
compiled and readied for analysis, we will create legislation appropriate to our
state, begin to educate our legislature through the session in 1996 and the
study sessions in the summer of 1996, and then introduce legislation in the
first week of January 1997. Our odds of success are only 50/50 at best
because this is a pretty revolutionary idea and is not happening anywhere else.
I'll close at this point with a quick summary of the major features of the
proposal:
session).
Administrative no-fault system created by legislation (target date: 1997
Exclusive remedy for all cases of medical injury and accident
(definitions to exclude expected but disappointing outcomes being studied).
Compensation for economic losses including disability beyond a
waiting period. Medical payments are in excess of underlying health insurance.
Includes survivor benefits.
Improved provider discipline through enhanced reporting and
mandatory risk management focused on more collected data. Providers must
self-report incidents and notify patients of the system.
The administrative agency will both manage the compensation system
and, separately, investigate incidents and errors
Initial funding will be by provider payments to the agency equal to
their previous insurance payments. Thereafter, payments will be based on
experience rating.
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BLOOD AND BLOOD PRODUCTS: SAFETY AND RISK
DISCUSSION
Edward A. Dauer: A group of attorneys, blood bankers, hospital
administrators and claims executives, and others have been working over the
past 2 years to develop a pilot project to test the feasibility of no-fault
compensation for blood- and transfusion-related injuries. The program, which
was initiated by the American Asociation of Blood Banks (AABB), the
Council of Community Blood Centers (CCBC), and the American Red Cross
(ARC) working in concert, differs in some significant ways from the programs
just described that are being readied for testing in Colorado and Utah. One
significant difference is that the Colorado and Utah experiments both require
legislation. The AABB-CCBC-ARC program does not; it is entirely private.
The origin of this private model was the aftermath of the transfusion-
related HIV tragedy of the early 1980s. Having experienced the difficulties of
the associated litigation, in addition to the personal and organizational stresses
of the episodes, the leadership of the three blood banking organizations
decided that they would like to have some alternative in place for the filture,
should there ever be another such threat to the safety of the blood supply.
They commissioned the Center for Public Resources (CPR) to examine the
possibilities. One of the suggestions made by CPR in its report to the
sponsors was that they explore more fully a privately run no-fault system,
limited to transfusion-related injuries, to serve the needs of the blood banking
community and because it would thus be attractive to potential hospital and
physician participants to act as a demonstration model for medical injuries
generally. The sponsors accepted the proposal and determined that a pilot
program should be implemented.
The model is being developed as a pilot program, for initial
implementation in a single state. There are two dominant blood suppliers in
that state, making the organizational tasks relatively straightforward. The
leadership of both were positive toward examining the possibilities. In
addition, the medical community was particularly sophisticated about
alternative dispute resolution (ADR) as a result of their own experience with
legislative efforts, and the political system appeared to be more accessible than
would be true in a much larger state. A working group was assembled under
the leadership of the state hospital association, and the hospital community
responded eagerly to the invitation to participate in the study.
The outline of the no-fault model is provided in Table 11. It will cover
designated transfilsion-associated injuries, including all blood-borne pathogens,
transfusion errors, donor injuries, and other designated incidents. When an
individual incurs a covered injury, the group of participating organizations,
including the implicated hospitals, blood banks, physicians, and their insurers,
will make an offer to the plaintiff to compensate him or her for economic
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NO-FAULT INSURANCE
169
losses on a no-fault basis. The offer is made after the injury (as opposed to
a contract entered into with the patient in advance) and will address that
person's disability and medical needs attributable to the medical injury as they
arise.
TABLE 11 Elements of the Transfi~sion-Related Injury Compensation
Program
1. The program will be a pilot, with no certain termination date, subscribed to by
blood centers, participating hospitals, and physicians and their insurers,
2. that offers to persons with designated transfusion-associated injuries-all blood-
borne pathogens and transfusion errors-after the inquire occurred,
3. compensation for attributable economic losses, including actual medical costs if
and when incurred and (subject to some limits) actual disability wage losses,
4. on a non-fault basis, but only for injuries actually caused by the activities or
products of a member of the group.
5. The injured person will release all participating individuals and organizations from
other liability and agree to resolve allfuture disputes by arbitration or other ADR.
6. The offer will be made once there is a recognition that an infection or injury has
occurred, for example, through the precess of look-back, or when a claim is
brought against a participant.
7. Causation will be assumed for certain injuries, subject to the blood center's or
hospital's ability to disprove it, e.g., a known pretransfusion infection or a donor
later tests negative.
8. Compensation funding will be on a pay-as-you-go basis, with each participant
contributing to the pool for its patients.
9. Al [locations of the costs among the hospital, the blood center, and, where
appropriate, the physician will be negotiated, with a form of ADR agreed to in
advance to resolve disputes.
10. Claims management including both contact with the injured person and
management of the claim thereafter Will be done in a coordinated way on behalf
of all participants.
Although "fault" will be irrelevant to the question of compensation,
"causation" will continue to be required. This is an important limitation.
Hepatitis is one of the infections that we believe must be among the covered
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BLOOD AND BLOOD PRODUCTS: SAFETY AND RISK
injuries. The prevalence of hepatitis in the general population is so large and
so little of it is transfusion related that we must retain the criterion of cause-in-
fact to be certain that blood will not carry the insurance premium for all of
hepatitis in the patient population regardless of its origin. Given that there is
no universal preoperative testing for hepatitis, surrogates for assessing
causation will be necessary. If, for example, certain symptoms appear within
certain time frames, we will presume causation. The details here are somewhat
complex; suffice it to say that they have been worked out to optimize the
balance between efficient investigation and accurate compensation.
Once an incident occurs, the patient will be contacted very early on, while
the problem is still something that can be managed reasonably and before it
becomes an intransigent legal claim. If there are disputes over time as to
whether some item of medical expense ought to be covered or not, or whether
some portion of a participating person's medical or disability expense falls
within the policy, those issues will not be taken back to court but, rather, will
be resolved through a private mechanism somewhat resembling arbitration.
The bottom line of the program is that even though more people will be
paid something, the efficiencies of running a compensation system in this way
are great enough that the program can operate within the existing expenditures
for insurance premiums and other payments presently attributable to these
same injuries. That, in any event, is the hypothesis that the model is designed
to test. Our economic studies suggest that it will work.
The program should be ready by 1996. We have been working on the
details of the administrative system, including recruiting additional hospitals
and health care providers to the effort. Financially, the system is designed to
be at least a break even effort. Compensation efficiency and breadth will be
increased, blood centers and hospitals can get out of the litigation business,
and compensation for the injured person can be more accurately focused and
applied. Finally, this may be a device that has broader application to medical
injury generally.
We are of course concerned about whether we did the arithmetic correctly.
That is why it is a pilot program. We have put it together with escape valves
and brakes that we can apply at any time.
We are going to watch it very
carefully. But even if it does terminate early, we will guarantee continued
benefits to anyone who has already agreed to participate up to that point.
One of the most trenchant criticisms that has been made of this system is
what we have been calling the adverse selection effect. Because the offer is
made post injury, some observers suggest that all those with currently
noneconomic claims will come for the "free money," while those with large,
very serious claims will stay in the court system. Thus, it is argued, the
program will have the worst of both systems.
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We have studied this possibility carefully, and believe that by contrast we
may have the best of both systems. There is a substantial advantage to
promising to pay a sick person, right now, exactly what is needed, rather than
requiring that person to go into a forum in which some may win, most will
lose and everyone winds up somewhat worse off. In addition, we have
calculated the worst case by assuming that the selection effect does occur and
have determined that even if every assumption of the model fails, the outside
risk is a manageable one. More realistically, it appears that the process-cost
savings Dom only two court cases avoided will cover the cost of 100 percent
of the compensation for injuries not now being paid.
Paul Schmidt: I just paid my $250 to the Florida Neurologic Birth Injury
Fund as a pathologist. If I were an obstetrician I would have to pay $5,000.
I look at it as the "All babies must be born perfect and all patients must live
forever" fund. There was a paper in Lancet~°8 out of England about 3
months ago looking at hepatitis C in patients in a hematologic, oncologic ward
back over the years in which 34 percent of the patients developed hepatitis C.
By polymerase chain reaction and other studies it was their opinion that none
of the patients got hepatitis C from transfusion. That would be the logical
presumption. They were all transfused. They got hepatitis C, but they were
convinced that there were other reasons why they got it in the hospital.
Edward A. Dauer: That goes to the question of causation. While we are
moving into no-fault, we are not moving into no-cause. One of the things that
a patient must establish is that they received a unit of blood that came from
one of the participating blood centers. We then do a look-back to see if we
can find the donor. There are ways in which we can reduce the probability
that payments will be made for hepatitis caused by non-blood components.
One of them that has been proposed is that some kinds of symptoms must
occur within a certain time frame immediately after the transfusion.
Paul Schmidt: That is based on what we know today, and if we let the
science evolve we might find out that it is not the answer. There may be
better ways of looking at it.
Edward A. Dauer: We need to make some judgments about what it is we
want to accomplish. Over the last 10 years plaintiffs' lawyers have reamed
how to sue blood banks. They did it with HIV. Hepatitis may well be next.
~°8Allander, T. A Gruber, M Naghavi, A Beyene, T Soderstrom, M Bjorkholm, L Grillner,
MA Persson (1995). Frequent patient-to-patient transmission of hepatitis C in a haematology ward.
Lancer, 345(8949): 603-607.
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BLOOD AND BLOOD PRODUCTS: SAFElrY AND RISK
The number of cases we have seen involving plaintiffs actions and hepatitis
may be no indication of what we are going to see in the fixture. We need to
make some guesses as to whether this is going to be better or worse.
There are some other interesting pieces of the mathematics. For instance,
over 40 percent of all those who receive a transfusion die within a very short
time from the underlying condition for which the transfusion was required.
We have factored those things in, and the program looks feasible, but it is still
a pilot program, and we won't know everything about it until we do it.
William Sherwood: Can you give us some idea of how the compensation
works? I gather punitive damages aren't here.
Edward A. Dauer: That is correct.
William Sherwood: Is there pain and suffering?
Edward A. Dauer: No.
William Sherwood: If there are effects with hepatitis or cirrhosis 10 years
later, how do those get handled?
Edward A. Dauer: That is precisely what we see as the advantage for those
few people who will have serious problems in the future. Under the formal
legal system, the statutes of limitations and other rules force people to bring
lawsuits before they know the extent of their injuries. What this system would
provide to the injured person is a guarantee to cover those needs as they arise
in the filture. We, in turn, will be working on a funding mechanism to ensure
that there is an actuarially appropriate reserve fund or other capability to
handle those needs. Coverage of actual medical needs attributable to the
injury, to the extent possible under the law, will be in excess of or secondary
to existing health care coverage. The details of maintaining an excess position
are complex and difficult and, I must say, not yet fully worked out. This is
one disadvantage of a private program. However, the program can also be
made financially feasible, even if this assumption is incorrect.
The disability loss will be limited to a percentage of the average monthly
wage of the average wage earner (plus inflation factors) during that person's
working life. We will not pay the lost earnings of a neurosurgeon, for
example. This offer, then, might not be as attractive to some people who
might be able to do better in court. But we believe a 100 percent probability
of meeting one's needs is more attractive than a small probability of achieving
one's demands. That is the selling point of this program to the injured people.
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It will pay medical expenses and disability as incurred, measured as time goes
on, and those funds will be guaranteed through an insurance mechanism.
Henrik Bendixen: You have been explicit about the efficiency achievable
with respect to cost. Could you elaborate on the efficiency with respect to
time, especially as the court system gets busier and busier?
Edward A. Dauer: That is the reason we think an offer like this makes sense
even in the very serious injury case, particularly if someone has a limited life.
The process of trial, appeal, and if necessary, retrial can sometimes take longer
than the expected life span of the person who has been infected. Our
payments will be immediate.
Celso Bianco: There is a lot of resistance to this process in many areas.
There is one aspect that the trial lawyers actually play with: the patient's anger
and desire for vengeance. How are you going to deal with this?
Edward A. Dauer: There is a growing empirical literatures that
investigates among people who are injured the question of who brings lawsuits
and who doesn't, why they bring lawsuits, and what is it that motivates them.
In many ways money is a surrogate for things that don't necessarily require
money. In any number of cases dealing with injured neonates we have seen
that one of the reasons for a lawsuit was that the parents could not otherwise
find out what happened. They brought the lawsuit to go through the formal
discovery process and require the physician and the hospital to be forthcoming
with information. Our hope is that if people can be dealt with early on in the
development of their disappointment, we may be able to satisfy their needs and
not have to satisfy many of those demands. Sometimes anger can be dealt
with by a $100,000 punitive damages award and sometimes by somebody
saying, "I am terribly sorry." The latter is underrated.
Harold Sox: The system that both of you have described appears to deal with
the troubles that we know and their actuarial likelihood based on existing
resources. Part of the reason that we are here is to anticipate the troubles that
we don't know about. Do you have any comments about how that potentiality
should be anticipated to develop a better system in the future?
Edward A. Dauer: In doing the calculations as to the cost of this process, we
did studies of what the likely known kinds of injuries are going to be. I don't
Writhe studies are collected and discussed in chapter 17 of E. Dauer (1994; Suppl. 1995).
Manual of Dispute Resolution: ,4DR Law and Practice. Colorado Springs: Shepard's McGraw-Hill.
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know how one deals with the cost of unknowns. This program is dealing with
cases prospectively only; that is, we are not going to deal with people who
have been injured in the past. The reason is that we cannot load onto the
present medical system a premium for the accumulated injuries that have
occurred up to now. But given a system that only pays damages as they come,
there is the opportunity, in effect, to self-insure through the pricing of blood
and blood products over a longer period of time that may allow for that
adjustment. We are not in the insurance business. What we may find is that
reinsurance of the guarantees will require an insurer to do that additional
prognostication. We don't know how to do that directly.
Mason Howard: The issues in blood products are a little bit different from
those in all the rest of medical practice. I cannot answer how you address
something that is going to appear in the future. I do believe, however, that
with the system that we propose there will be an enhanced level of provider
behavior in our state because of the system. I hope there will also be a better
level of practice because of loss control activities that are focused right where
the injuries are occurring.
William Sherwood: Blood banking might be a small pool where a major
disaster, such as AIDS, hits it disproportionately compared with the rest of the
health care system. If there were a larger pool, such as more of the health care
system, over which to distribute the potential risks, would that be a better
scenario?
Edward A. Dauer: That would be very nice, but it may not be feasible just
yet. We have achieved in our project the cooperation of hospitals that are very
interested in the no-fault idea and in taking a share of the expenses to evaluate
the model. They want to see how this works in a limited area like blood
before moving toward doing something similar to cover other areas of medical
injury. On the other hand, the hospital community may still be hoping that a
resolution of the malpractice problem will be forthcoming from the
legislatures. Apart from no-fault programs such as those proposed for
Colorado and Utah which offer a trade, essentially, of no-fault liability for
limited economic recovery-I would not bet very much on any major
legislative reduction in the liability picture in the near future.
Representative terms from entire chapter:
injured person
