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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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158 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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160 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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162 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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164 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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166 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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168 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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170 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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NO-FAULT INSURANCE 171 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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172 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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NO-FAULT INSURANCE 173 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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174 BLOOD AND BLOOD PRODUCTS: SAFETY AND DISK 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.