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New Hampshire Becomes First State to Adopt; Early Offer; Alternative to Medical Injury Litigation

On June 27, 2012, the House and the Senate overrode Governor Lynch’s veto of SB 406, establishing a new, alternative method of seeking recovery for those injured in the course of medical treatment. The new “early offer” system will be in effect at the beginning of 2013. As explained below, it is voluntary for both patients and providers – no patient, provider, or insurer is required to participate. It allows patients to seek a quick and specific payment from providers based on out-of-pocket losses (in the past and going forward), plus an additional amount for the nature of the patient’s injury, but no recovery for pain and suffering, lost earning capacity, or other types of losses that may be recovered under the traditional court system.

The “early offer” system is the brainchild of University of Virginia law professor Jeffrey O’Connell, who has been working for decades on proposals like the one in SB 406. New Hampshire is the first state to adopt such a program. The legislation was championed by representatives of the Elliot Hospital, with support from the New Hampshire Hospital Association and the New Hampshire Medical Society. It was opposed by the New Hampshire Association for Justice (formerly the New Hampshire Trial Lawyers Association) and two of the companies that provide liability insurance for medical injury claims.

Summarized below are the Legislature’s objectives in putting the “early offer” system in place and the mechanics of the system. This summary is not intended to cover every aspect of the new program, which is detailed and complex. Providers who are uncertain of their rights and obligations are encouraged to consult with counsel.

Findings and Purpose. The Legislature found that, for many, the current medical injury litigation system costs too much and takes too long; and, at the end of the process, produces unpredictable results. The Legislation states that it relies on data reported by, among others, the New Hampshire Insurance Department, the American Medical Association, the Harvard School of Public Health, and the Gallup public opinion survey. It concludes that introducing a voluntary, alternative system as a supplement to (not a replacement for) the traditional court-based system, “will provide fast and certain results for those who use it.”

Contents of an “early offer.” SB 406 defines an “early offer” to be “an offer to pay an injured person’s economic loss related to a medical injury, and reasonable attorney’s fees and costs incurred in representing the injured person.” The law specifies what kinds of losses are to be included: “actual out-of-pocket medical expenses, replacement services … and 100 percent of the claimant’s salary, wages, or income from self-employment or contract work lost as a result of the medical injury.” An “early offer” also must include additional payments as set forth in a specific schedule based on the nature of the claimant’s injury. The additional payment schedule has eight categories with specific amounts for each, such as $7,800 for a “temporary injury involving minor harm” and $81,500 for a “permanent injury involving significant harm.” The smallest additional payment is $2,100 for a “temporary injury involving insignificant harm,” while the largest is $140,000 for a “permanent injury involving grave harm, or an injury resulting in death.”

An early offer includes a promise to pay a claimant’s future expenses related to the injuries suffered, plus the claimant’s reasonable attorney fee, set at “20% of the present value of the claimant’s economic loss [including those future expense] and the reasonable costs incurred in representing the” claimant under the statute.

The statute precludes recovery through the “early offer” system of a range of other types of damages.

Economic loss does not include: pain and suffering, punitive damages, enhanced compensatory damages, exemplary damages, damages for loss of enjoyment of life (hedonic damages), inconvenience, physical impairment, mental anguish, emotional pain and suffering, and loss of the following: earning capacity, consortium, society, companionship, comfort, protection, marital care, parental care, attention, advice, counsel, training, guidance or education, and all other non-economic damages of any kind.

See RSA 519-C:1, III and IV (definitions of “early offer” and “economic loss”); RSA 519-C:5, II (payment of future economic losses); RSA 519-C:7 (schedule of additional payments based on nature of injury).

Procedure. The “early offer” timelines and procedures are spelled out in RSA 519-C:2 and 519-C:3.. A person wishing to seek payment for a medical injury may proceed under the existing court-based system, or may choose to request an “early offer” from the medical provider(s). If the person proceeds under the existing system, the “early offer” system has no effect. In this way, the new process is voluntary for a prospective claimant. If the person wishes to seek an “early offer,” then she is required to serve on the provider(s) a “notice of injury” and an executed “waiver of rights.” There is a required form for the waiver of rights in the statute. RSA 519-C:13. Claimants who are not represented by lawyers are to have an attorney appointed to consult with them about the early offer process. Claimants have a short window of time to withdraw a notice of injury and waiver of rights after consulting with counsel.

Upon receiving the notice and waiver documents from a claimant, a provider has 90 days to extend an early offer of settlement, or decline to do so. If a provider declines to extend an early offer, the claim proceeds as if the early offer statute does not exist. Just as the process is voluntary for claimants, it is thus voluntary for providers as well. While deciding whether to extend an early offer, the provider may require the claimant to be examined by an independent physician. If the claimant and the provider are not able to agree on who shall perform the independent examination, the statute states that a hearing officer under the authority of the judicial branch will choose the physician. If the provider requests an independent examination, the time for responding to the claimant’s request for an early offer is extended from 90 days to 120 days.

If the provider makes an early offer, the claimant has 60 days to accept or reject it. If the claimant accepts the offer, the provider is required to pay the amount of the offer plus any future economic losses as they are incurred[2] and “the claimant is barred from pursuing any claim for the same medical injury against any medical care provider.” If the claimant rejects the offer, the claimant may pursue a claim under the existing system, but, if she does not prevail in the action by recovering at least 125% of the amount of the early offer, then she is responsible for paying the provider’s costs and attorney’s fees during the early offer process and must post a pond or other suitable security for those amounts.

If a claimant believes the early offer made by a provider is inadequate under the statute, the claimant may request a hearing under the dispute resolution provisions described below. If she requests a hearing, the time for the claimant to respond to the early offer is extended to 10 days after the hearing officer’s decision.

Dispute resolution. The dispute resolution provision is in RSA 519-C:10. As noted above, the hearing officer to resolve disputes will come from the judicial branch. The hearing officer is charged with resolving only the following kinds of disputes.

• whether the offer includes all of the economic losses related to the injury;
• whether a particular economic loss asserted by the claimant is “reasonably related” to the injury that is the subject of the offer;
• which category of injury type best describes the claimant’s injury for purposes of identifying the additional payment amount; and
• determining the net present value of the offer for the purpose of calculating the claimant’s reasonable attorney’s fees.

Hearings on disputed issues are to be within 45 days of the request for a hearing and the hearing officer is required to issue a decision within 10 days of the hearing. If a party takes a frivolous position in a hearing, the hearing officer may require that party to pay the other side’s hearing costs up to a maximum of $1,000. If a provider takes a frivolous position against an unrepresented claimant the hearing officer can require the provider to “pay the claimant double the amount that was frivolously disputed or denied.”

Confidentiality; obligation to report to the Board of Medicine. Proceedings, records, and communications during the early offer process are confidential and are not admissible in court or panel proceedings. Notices of injury and subsequent actions under the early offer statute are exempt from the reporting requirements of RSA 329:17 unless the parties reach a settlement under the early offer statute. Such settlements are not exempt from the reporting requirements. See RSA 519-C:4.

Claims involving multiple providers and parties other than medical providers. As noted above, acceptance of an early offer precludes any further action by the claimant against any provider for the same injuries. The statute allows one provider to pursue a contribution action against other providers.If such a contribution action is brought, the statute specifically does not prevent providers defending themselves from requiring the claims against them to be put into the panel process contained in RSA ch. 519-B.

The early offer statute applies only to medical providers. Acceptance of an early offer does not limit an injured person’s claims against prospective parties who are not medical providers.

Effect on the statute of limitations. Except for claims on behalf of deceased individuals, starting the process of seeking an early offer has the effect of tolling (or stopping) the running of the statute of limitations from the time the process begins until it ends. Claims on behalf of deceased individuals remain subject to RSA 556:7, which requires claims to be made within one year after the original grant of administration to the estate. See RSA 519-C:11.

Reports and sunset provision. The insurance commissioner is to submit annual reports to the legislature on the statistics developed on the performance of the early offer system. The entire program expires on November 1, 2020. In order for it to continue beyond that date, a future legislature will have to enact new legislation.

As with most new things, there are differing opinions about whether and how the “early offer” system will work in practice. The NH Association for Justice and the Governor (who vetoed the legislation), believe the system will deprive some number of injured patients of a fair shot at full recovery for their injuries. They warned that patients or their families, in a time of stress and uncertain of their rights, will sign away their rights without understanding the full consequences of their actions. They also complained about the requirement that a plaintiff who rejects an early offer be required to post a bond to cover the potential recovery of fees and costs should the plaintiff’s ultimate recovery not be at least 125% of the early offer amount. The program’s proponents argued otherwise, stressing the voluntary nature of the program for both patients and providers, as well as the appointment of a neutral legal advisor for unrepresented potential claimants and the ability to withdraw an early offer request. They said these provisions protect consumers’ rights while allowing the system to have a chance to function. They also downplay the significance of the bonding and fee-shifting provisions, arguing that resort to them is likely to be an unusual circumstance.

One of the main concerns of the liability insurance companies was the requirement that future economic losses be paid on an “as incurred” basis, with no ability to require payment of them in a lump sum without the agreement of the claimant. The bill’s proponents argued, again, that the voluntary nature of the program goes both ways. No provider or insurer is required to participate, so providers and insurers faced with a claim in which there is high likelihood of future losses are free to decline the invitation to make an early offer.

As noted in the discussion, the program expires on its own in 2020, with annual reports coming from the Insurance Department until that time. It is likely that the program will be the subject of proposed legislation before then as often happens with statutes that affect the justice system.