Budget 2013 – The case for periodic instead of lump sum payments for damages arising out of alleged medical negligence.

Key Point

We should move right away from lump sum to periodic payments in the case of medical negligence cases in Ireland. And this should happen before Budget 2013 is presented to the Oireachtas (Parliament) in December 2012. An excellent report explaining why this should happen, and how it should be done, was presented to the then Minister for Justice almost 2 years ago. Inaction will have many costs, not least that the Minister for Finance will have to find up to about €50 million right away that he (and we) can all ill afford.

Introduction

At present, when damages are awarded in Ireland to a person who suffers serious impairment of health as a result of alleged medical negligence, it is in the form of a once off lump sum, to enable him/her to pay for a lifetime of care. At the time of the award, a decision must be made based on assumptions which include: life expectancy of the plaintiff, prospects of further deterioration, costs over time of medical care and treatment, loss of earnings, rates of inflation and of return when lump sum is invested. The Working Group on Medical Negligence and Periodic Payments was established in February 2010 under the leadership of then Justice of the High Court John Quirke (and currently President of the Law Reform Commission) to:

• Examine the present system within the courts for the management of claims for damages arising out of alleged medical negligence and to identify any shortcomings within that system.
•  Make such recommendations to the President as may be necessary in order to improve the system and eliminate the shortcomings.
• Consider whether certain categories of damages for catastrophic injuries can or should be awarded by way of Periodic Payments Orders.

Analysis and Conclusions of the Group

The Group concluded that the current system of awarding damages for future pecuniary losses – the lump sum award – is inadequate and inappropriate, and that it should be replaced by periodic payments.  The report was presented to the then Minister for Justice Dermot Ahern on November 15, 2010, and is available here 

Most of what follows is drawn from this report.

The disadvantages of the lump sum approach are many, and include:

• No recourse for the injured victim who exhausts the fund by exceeding his/her life expectancy. In practice, the State de facto ends up   – with varying degrees of success – providing or funding the gap in care arising in such circumstances.
• Catastrophically injured persons who are intellectually capacitated are entitled to manage their own resources after a lump sum award of damages. Some may be youthful or inexperienced or both. Many invest unsuccessfully notwithstanding professional advice. Recent economic events illustrate the difficulties facing investors who need specific long term return on investments.
• A defendant has no recourse if a large lump sum is paid to a plaintiff who succumbs to his injuries earlier than expected. The next of kin of some deceased plaintiffs have received unintended multi-million euro windfalls. Ironically, some have been those whose negligence originally caused or contributed to the catastrophic injury.

The only advantage is finality for both parties –one knows how much must be paid, the other knows how much he or she will receive.

The current system is in a sense designed to fail. It fails the State, because it becomes in any event the residuary legatee of support in cases where the lump sum is poorly invested, and/or the individual lives longer than anticipated. It fails the individual, because he or she and their family must deal with risks of investment, mortality and inflation, and general stress in situations where what is needed is inadequate, or family tensions and frictions where a windfall gain is a possibility.

The Working Group examined alternatives to lump sum payments as implemented in Germany, Belgium, Italy, Sweden, Australia, the US, Canada, and the UK. It concluded that (p. 25)

“The English system of compensation by periodic payments orders represents the most modern and effective model for payment of ongoing care and associated costs in personal injuries actions”.

Specifically (pp. 7-9), the Group’s principal recommendations are as follows:

(i) Legislation should be enacted to empower the courts, as an alternative to lump sum awards of damages, to make consensual and non-consensual periodic payments orders (PPOs) to compensate injured victims in cases of catastrophic injury where long term permanent care will be required, for the costs of (a) future treatment (b) future care and (c) the future provision of medical and assistive aids and Appliances.  The revolutionary aspect of PPOs will be the fact that the Orders may be made by the Court in the absence of consent between the parties.

 (ii) Periodic payments orders may only be made in circumstances where the court is satisfied that continuity of payment under the periodic payments order is reasonably secure;

(iii) The State, through the agency of the NTMA, should be empowered to provide injured victims with the necessary security for periodic payments

 (iv) The  Group recommends the introduction of earnings and costs-related indices which will allow periodic payments to be index-linked to the levels of earnings of treatment and care personnel and to changes in costs of medical and assistive aids and appliances, prepared under the aegis of the  Central Statistics Office. This will ensure that plaintiffs will be able to afford the cost of treatment and care into the future.

(v) Variation of periodic payments orders should be permitted where it has been determined that the plaintiff’s condition will seriously deteriorate or significantly improve.

(vi) A person entitled to receive periodic payments under a court order should not be entitled to assign or charge that right without the approval of the court which made the order.

(vii) Periodic payments orders made to compensate for the costs of a plaintiff’s care, treatment and medical and assistive aids and appliances should not extend to dependents of a plaintiff after the plaintiff’s death.

(viii) Exemption from income tax for such payments

Budget Implications

It is now close to 2 years since the Group issued its recommendations. Delay in acting on its proposals has potentially extremely negative budgetary implications, for the following reason. There is now a substantial backlog of cases (11) awaiting action. If lump sum settlements are made rather than being spread out over the lifetimes of those injured, the amount required now will be of the order of €50 million, and could be much more.  The relevant care costs must be paid from public resources in the long term either directly, by the State or indirectly, via insurance premiums.

The main immediate financial advantage for the State  is  that the care costs will be paid over a lengthy period and not immediately during a time when the State is “cash strapped”. Also, when the Court orders insurers to purchase the annuities (i.e. the PPOs), from the NTMA by lump sum payments, the State is again receiving significant cash payments (albeit from premium payers). And the State will be entitled to keep the cash in the event of the death of the injured person; if the injured person exceeds life expectancy the State will have to bear the additional costs anyway.

Under the terms of Ireland’s Stability Programme (the Troika agreement), we must cut the government’s expenditure by €2.25 billion (1.70 billion current, 0.55 billion capital) in 2013, and by a further €2 billion in 2014. It will be an extraordinary missed opportunity if we allow ourselves to drift into gratuitously deepening the fiscal chasm that we must bridge by sticking with the lump sum payments model. And of course it will also continue to sustain  all of the uncertainties, inefficiencies, unfairness and costs that the current scheme engenders.

On Wednesday, 16 May 2012 Minister for State Dinny McGinley, TD, responding in the Senate on behalf of the Minister for Justice and Equality  to a question from Senator Colm Burke, pointed out that:

“The National Treasury Management Agency (NTMA) is conducting an actuarial review to examine the feasibility and cost-effectiveness of periodic payment orders as an alternative to lump sum payments or other options. The review will examine in particular the feasibility of the State acting as an annuity provider to insurers and indemnity providers in personal injury actions to enable compliance with the security of payments principle. The outcome of the review will inform the development of proposals under way in the Department of Justice and Equality to meet the Government’s commitment to legislate in this area. The review is expected to be completed in June 2012”.

The time for action is now. 

Professor Frank J. Convery

For a full PDF version click here.

The Benefits And Costs Of The Olympics

The most acerbically enjoyable view of the London 2012 Olympics has come from the Robin Lane Fox, gardening correspondent for the Financial Times (‘The real team GB’, Financial Times, House and Home section, August 4 and 5, 2012, p. 10). He dedicated his piece to the allotment holders whose cherished allotments have been destroyed by the Olympic park, and to the thousands of friends of Greenwich Park who have seen it ruined in order to create an equestrian obstacle course. He addresses what has been foregone as follows:

“The total Olympian cost of £9.3 billion could build at least 30 new hospitals or nearly 500 schools or fund three universities in perpetuity with endowments as big as Oxford.”

He also took aim at the opening ceremony:

“Why was there not a hint of Charles Darwin, the British mastermind who changed the world?”

And missing also were: the British geniuses who have changed many trillions of lives – Marie Stopes and her birth control, Fleming and penicillin, Crick and Watson and their DNA and Cicely Watson and her vision of proper pain control and a dignified hospice in which to die.

If economists had been asked to advise on the benefits and costs of the bid before proceeding (and they were not..), they would probably have estimated the willingness to pay by the British public for the Olympic experience; if these substantially exceeded the costs, then they would have approved. But the outcome would depend very much on how the choice was posed. Context is crucial: If what is foregone – the opportunity costs as outlined by Lane Fox – were presented as part of the question, they outcome would be much less favourable than if the choice was presented in isolation. But there are other considerations. The games give us insight into the evolution of national characteristics and culture.

A true but incomplete image of Englishness comes from George Orwell:

“The English have a horror of abstract thought, they feel no need for any philosophy or systematic world view. What endures is the addiction to hobbies and spare time occupations, the privateness of English life. We are a nation of flower lovers, but also a nation of stamp collectors, pigeon fanciers, amateur carpenters, coupon snipers, darts players, crossword puzzle fans.”

The Olympics widens the view to include a ferocious competitiveness and professionalism, especially in cycling and sailing, but it also engenders a sense of sharing and community. A character in one of Ibsen’s plays observes

“A community is like a ship; everyone ought to be prepared to take the helm”

– for these two weeks, the riots of yesteryear are forgotten – London is like Ibsen’s ship.

And of course China’s talents continue to surprise and impress. Chinese journalist and personality Hung Huang observed:

“We want people to really acknowledge our accomplishments. But by nature, the Chinese are conspiratorial. They don’t like to show their cards. They want to keep something hidden.”

The Olympics are the perfect antidote to this combination of need for acknowledgement and what in Ireland we call cute hoorism – Chinese talents in diving and many other fields that were hidden are given full acknowledgement on a world stage.

Acting and Olympic sports are two platforms where women are given (almost) full parity of esteem with men. Annalise Murphy (sailing) and Katie Taylor (boxing) are Irish Olympic stars in a country where women’s accomplishments in Gaelic games, rugby and otherwise are hardly acknowledged.
Finally, the Olympics creates a sort of inclusiveness, a place where the extraordinary achievements of countries and people that are often ignored – Kazakhstani wrestlers and the fastest man in the world from Jamaica (Usain Bolt) – are at the centre of the world’s stage.

So do the benefits exceed the costs?

Not for Robin Lane Fox, or the (former) allotment holders in what is now Olympic park, and not for all of those who seek refuge in Lyric Radio and other sports free zones for the duration. But for the rest of us, the calculus works, especially since the UK bears most of the costs, and the rest of us garner the benefits.

Professor Frank J. Convery
UCD Earth  Institute