Personal Injury Litigation:
Proving or Disproving Economic Damages
Navigating Methodologies and Factors Impacting Court Awards and Best Practices for Recruiting Financial Experts
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THURSDAY, SEPTEMBER 20, 2012
Presenting a live 90-minute webinar with interactive Q&A
Ronald T. Luke, President, Research & Planning Consultants, Austin, Texas Kacy L. Turner, Vocational Consultant, Research & Planning Consultants, Austin, Texas
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5
Personal Injury Litigation:
Proving or Disproving Economic Damages
Navigating Methodologies and
Factors Impacting Court Awards
September 20, 2012
6
Overview
• General Concepts
• Loss of Earning Capacity • Discounted Present Value
• Vocational Evaluation of Residual Earning Capacity
• Life Care Planning – Clinical • Life Care Planning – Economic
7
General Concepts I
• Economic damages analysis compares two scenarios that start at the time of the injury
– Life with injury
– Life had injury not occurred – Difference is damages
• Past and future damage calculations involve
estimates and projections of the two scenarios • Projections are reasonable, not accurate
8
General Concepts II
• There are factors affecting future earnings and future medical costs not related to the injury
– Individual aging
– Risk of death, disability, unemployment
• Specific information about the injured party replaces general statistics when available
– Work and earning history – Medical history
9
Loss of Earning Capacity
See RPC Sample Loss of Earning Capacity Report References to Figures are to Attachment 4 of that report
10
Two Concepts of Earnings
• Projected Earnings: a projection of what a person will earn in the future
– Projected annual earnings – Work life expectancy
• Projected Earning Capacity: a projection of what the person can earn if he fully uses his earning capacity
– Projected annual earnings
11
Earning Capacity as an Asset
• A financial asset is something that can produce income for the owner
• Earning capacity is the most valuable financial asset most people own
• Assets have the potential to produce income even if not doing so currently
– Idle agricultural land
– Lawyer raising children full-time – Person starting new business
12
Pre-injury Annual Earnings
• Person with work history
– Employed persons
– Self-employed persons
– Problem of undocumented income
• Person with limited or no relevant work history
– Child or student – Homemaker
13
Employed Person with Work History (Fig. 1)
• Earnings documentation
• Social Security earnings history
– Tax returns with W-2 and supporting schedules – Fringe benefits
• Education, training and experience • Prospects for promotions
• Plans and interests
14
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Earnings for the Self-Employed
• Salary and wages
• Financial statements
• Business tax returns (Schedule C or 1120) • Retirement accounts
• Fringe benefits
• Interest and dividends from business • Dual use expenditures
• Profit/retained earnings/increase in book value • In some cases a formal business valuation may be
needed
16
Undocumented Earnings
• Failure to report earnings to IRS does not prevent claiming loss of earning capacity
• Possible evidence to estimate past earnings
– Household expenditure records
– Receipt books or other business records – Bank accounts
• Question: how to handle future tax payment or non-payment
17
Persons with Limited or No Work History
• Education, training and experience of adults
• Family education and occupational experience for children
• Plans, interests and intentions
• Bureau of Labor Statistics data on earnings by job and occupation over time
• Bureau of Labor Statistics data on earnings by age and educational attainment
• Local salary data from telephone surveys or
sources like www.salary.com.
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Sample Salary.com Data
20
Fringe Benefits (Fig. 2)
• An increasing percentage of total compensation • Fringe benefits for a specific job
– Employee handbooks
– Interview human resources staff
– Special issues with government jobs
• Fringe benefit not for a specific job
– People change employers over a career
– BLS statistics on fringe benefit costs by occupational group, industry and geographic region
21
BLS Table Showing Benefits by
Occupational Group
22
Increases in Annual Earnings (Fig. 3)
• Social Security Administration (SSA)
projections for 75 Years in the most recent Annual Report to the Trustees
– Projected CPI inflation
– Projected real increases in average earnings • Past BLS data on nominal change in average
earnings in specific jobs relative to all jobs
• Assume the past relationship for a specific job and all jobs holds in the future
23
2012 Trustee Report Table V.B1
24
Taxes
• Personal injury awards are not taxed, so damages should be computed after tax
• Deduct Social Security and Medicare taxes (compute Social Security benefits separately) • Deduct state and federal income taxes
– Consider past income tax average and marginal rates – Consider filing status
– Use current tax tables for future years
25
Adjustments to Earning Capacity for Factors
Beyond the Person’s Control (Figs. 4-6)
• Death
Annual survival probabilities by age, gender and
race/ethnicity from most recent life tables from National Center for Health Statistics. See Figure 4.
• Disability unrelated to subject injury
Annual probability of being unable to work due to physical or mental disability by age, gender and race ethnicity from National Health Interview Survey. See Figure 5.
• Unemployment
Annual probability of being unemployed by age, gender and race from BLS data and SSA projections. See Figure 6.
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Summary of Calculation (Fig. 7)
1. Future annual wages x annual percentage increase = annual wages
2. Projected annual wages x fringe benefit percentage = fringe benefit value
3. Projected annual wages x tax rates = annual taxes 4. Annual wages + fringe benefit value – annual taxes
= annual earnings
5. Annual earnings x probability alive x probability able x probability employed = expected annual earning capacity
27
Social Security Benefits (Figs. 8-10)
• Social Security benefits are related to earnings history through a complex formula
• Reduced earnings will usually reduce SSA retirement benefits
• Annual values for pre-injury and post-injury expected
earnings, excluding fringe benefits and taxes are entered into the SSA’s benefit calculator
http://www.socialsecurity.gov/OACT/anypia/anypia.html
• Expected benefits = benefits x probability alive. Continue calculation to age 100
28
Future Value of
Lost Earning Capacity Damages
1. Calculate pre-injury earning capacity 2. Calculate post-injury earning capacity 3. Subtract 2 from 1 for each year
29
Calculation of Present Value (Figs. 11-13)
1. Determine discount rate for each year
2. Apply discount rate to lost earning capacity damages for each year to calculate annual present value of that year
– For past and current years discount factor is 1.0 – For future years discount factor is <1.0
3. Sum annual present value separately for past and future years for discounted present value of past and future damages.
30
Determine Discount Rate (Fig. 12)
Several acceptable methods; this is RPC’s1. Obtain annual rate for 3 month Treasury bills 1960 – present 2. Obtain annual CPI inflation rate 1960 – present
3. For each year subtract 2 from 1 to estimate real interest rate for that year
4. Compute geometric mean of real interest rates. See Figure 11 5. Obtain SSA projections of CPI from Trustees Report
6. Project nominal interest rate=[(1+CPI) x (1+Real Interest Rate)] – 1 7. Annual discount factor = 1/(1+nominal interest rate).
31
Calculate Present Value (Fig. 13)
1. For each year multiply damages by discount factor for that year to calculate present value of damages for that year
2. Sum discounted present value for each year 3. Calculate past and future damages as of date
of trial separately.
32
Vocational Evaluation of
Residual Earning Capacity
See RPC Sample Vocational Report
33
Qualifications of a
Vocational Consultant
• Graduate degree in vocational discipline • Certifications or Licenses
– Certified Rehabilitation Counselor (CRC)
– Certified Disability Management Specialist (CDMS) – Certified Vocational Evaluator (CVE)
– Certified Case Manager (CCM)
• Professional Experience
– Vocational rehabilitation counseling – Vocational testing
– Forensic work
• Research Knowledge
34
Role of the Vocational Consultant
• Appropriate professional to evaluate pre-injury and residual earning capacity
• Administer test for aptitudes, skills, interests and intellectual ability
• Perform a Transferable Skills Analysis (TSA)
• Determine employment options consistent with physical or mental limitations
• Perform a labor market analysis
• Identify reasonable accommodations and aids to maximize residual earning capacity
35
Key Vocational Questions
in Personal Injury Cases
• Can the person return to his pre-injury job on a full-time basis with reasonable accommodations? • If not, what jobs are
– Consistent with the person’s current abilities and limitations?
– Available where the person resides? – Minimize loss of earning capacity?
• Can residual earning capacity be increased with reasonable education and training?
36
Vocational Assessment
• Record Review – Medical Records – Depositions – Educational– Tax/ Social Security – Employment Records
• Clinical Personal Interview
• Interview treating and consulting physicians and read medical reports
• Administer vocational tests
37
Vocational Evaluation
• Vocational Testing – Academic • Reading Level • Math Level • Spelling – Aptitudes • General Reasoning • Verbal Reasoning • Numerical Reasoning • Mechanical Reasoning• Spatial and Form Perception
– Interests
• Occupational Groups
– Work Values
• Working Alone vs. in a Group • Being the Leader vs. a Participant
• Working Repetitively or Different Duties Each Day
38
Job and Labor Market Analysis
(Attachment 3)
• Transferrable Skills Analysis
– Review Work History
– Add in any Changes in Physical Limitations – Residual Profile to Search New Occupations
– Compare New Occupations to the Residual Profile
• Labor Market Analysis
– Jobs available where person resides – Occupational Trends
39
Life Care Planning
See RPC Sample Plaintiff Life Care Plan Report
References to Figures are to Attachment 3 of that report
40
Qualifications of a Life Care Planner?
• Hold a degree and/or license in medicine, nursing, a vocational discipline or therapy. • Complete a Life Care Planning Certification
Program
• Complete requirements for certification by the Commission on Health Care Certification
41
Roles of the Physician
and the Life Care Planner
• Both are necessary for effective expert reports • Physicians give medical opinions that justify
the elements in the LCP
• Physicians don’t typically discuss supplies, aids for independent living and maintenance issues • The life care planner looks at the whole
picture of the client, researches alternatives, and determine all costs
42
A Life Care Plan (LCP) is
• Dynamic document based on published standards of practice
• Includes comprehensive assessment, data analysis and research
• Organized concise plan for current and future needs
• Includes all associated costs for individuals who have experienced a catastrophic injury • Costs calculated as billed charges or retail
43
The Life Care Planning Process
• Review records – Medical
– Depositions – Educational
– Tax/ Social Security – Employment Records
• Conduct clinical personal interview
• Consult with treating and consulting professionals
– Physicians – Therapists – Counselors
– Vocational Consultants
44
The Life Care Planning Process
(Continued)
• Prepare written history and assessment of injured person
• Determine future care needs and alternatives
– Literature search – Telephone research
– Consider home-based and institutional alternatives if applicable
– Decide description, quantity, frequency and duration of elements
45
Categories of Goods and Services in an LCP
• Evaluations • Medical care • Therapy • Diagnostic testing • Mobility equipment • Orthotics/Prosthetics • Aids for independent
living
• Home modifications • Personal care aides
• Home furnishing modifications • Durable medical equipment • Medications • Institutional care • Supplies • Transportation • Potential Complications
46
Evaluations
• Medical/ Physicians – Primary Care Physician (PCP) – Vision – Orthopaedist – PMR – Plastic Surgeon – Urologist • Non Medical – Physical Therapy (PT) – Occupational Therapy (OT) – Speech Therapy (ST) – Nutrition – Recreation – Vocational – Adaptive Equipment – Psychological47
Therapeutic Modalities
• Physical Therapy • Occupational Therapy • Speech Therapy • Individual Counseling• Couple’s/ Family Counseling • Adaptive Driving Training
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Diagnostic Testing
• Neuropsychological tests • Laboratory tests • Vocational tests • Imaging studies• Functional capacity tests • IDEA for Children
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Mobility Aids
• Equipment – Power Wheelchair – Manual Wheelchair – Scooter • Accessories – Roho Cushion – Batteries – Gloves – Backpack • Maintenance50
Orthotics/Prosthetics
• Bilateral Upper Extremity Splints • Ankle Foot Orthotic (AFO)
• Bilateral Resting Wrist Splints • Bilateral Resting Ankle Splints • Prosthetic Leg
51
Aids for Independent Living
• Wide based quad cane • Long handled shoehorn • Button aid • Zipper aid • Reacher • Adaptive clothing • Hospital bed • Air mattress • Shower wheelchair • Elevated toilet seat • Environmental
control unit (ECU) • Adaptive computer
52
Home and Furnishing Modifications
• Wheelchair ramp • Widened doors • Lower counters
• Environmental controls
• Remodel for accessible bathroom • Portable ramp
• Hoyer lift
53
Medications
• Prescription – Generic vs. Brand – Pain – Sleep – Depression – Stimulant – Blood Thinner – Blood Pressure• Over the Counter
– Pain
– Bowel Program
– Vitamin and Mineral Replacement
– Lotion
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Home versus Institutional Care
• How much care is needed? • What type of care is needed? • Is care feasible in home?
• What type of facility serves the needs best? • Home Care
– Agency
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Supplies
• Bandages • Bandage scissors • Lotion • Adult diapers • Catheters • Gloves • Nebulizer • Tracheostomy collar • Hearing aid batteries • Prism glasses• Antibacterial gel
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Transportation
• Vehicle modifications
– Wheelchair lift
– One handed steering wheel – Left foot gas/brake pedal
• Taxi
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Future Medical Care
• Costs for known medically necessary procedures
– Joint Replacement – Skin Grafts
– Plastic Surgery
– Intrathecal Baclofen Pump – Intrathecal Morphine Pump – Botox Injections
58
Potential Complications
Costs that may be needed in the future, but there is no reasonable medical certainty at this time
that they will be needed
• Decubitis Ulcers
• Respiratory Infections • Urinary Tract Infections • Arthritis
• Heterotropic Ossification • Seizures
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Current Cost Charts (Fig. 3.1 – 3.2)
• Beginning age of person - age as of report date • Ending age of person - duration of a service or
life expectancy
• For each plan element - average unit cost, annual cost, and lifetime cost
• Pricing research
– CPT codes
– Medical Fees in the United States and other data files – Billing records
– Telephone calls – Internet research – Medicare website
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Future Cost and Present Value of
Future Medical Expenses
See RPC Sample Plaintiff Life Care Plan Report
61
Inflation Rates for Medical Expenses
(Fig. 4.1 - 4.2)
• Future costs depends on the category of good or service and the year the cost occurs.
• Overall inflation rate for medical expenses is higher than CPI, but Inflation rates for medical goods and services cover a wide range.
• BLS currently compiles price inflation series on 19 different medical goods and services.
• Also different rates for non-medical elements in LCPs (vehicles, construction, household services)
62
BLS Inflation Series used in Life Care Plans
• Physicians’ Services
• Services by Other Medical Professionals • Medical Care Services
• Prescription Drugs
• Medical Equipment & Supplies • Inpatient Hospital
• Outpatient Hospital
63
Project Inflation Rates by Category
(Fig. 4.3)
1. For years BLS publishes category, compute compound annual rate.
2. For same years, calculate CPI compound annual growth rate
3. Calculate category rate as percentage of CPI rate 4. Obtain CPI inflation forecast from SSA
5. Apply percentage from 3 to forecast rate
6. Calculate inflation factor for current category prices for each future year in LCP.
64
Calculate Future Cost of LCP (Fig. 4.4)
1. Prepare a grid assigning all costs to a category and year.
2. For each cell in the grid, apply the correct
inflation factor to calculate future cost for the cell
3. Sum future cost of cells for each year to calculate future cost for year
4. Sum future cost for all years for total future cost of LCP
65
Calculate Present Value of LCP
(Figs. 4.5-4.7)
1. Use same discount factors used to calculate present value of lost earning capacity. (Fig. 4.5 - 4.6)
2. Apply discount factor for each year to future cost of LCP for that year to calculate
discounted value of that year
3. Sum years of plan to calculate present value of future medical expenses. (Fig. 4.7)
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Damages and the Real Price
of Health Care
• Most published price information for health facilities and practitioners is gross charges, not the amounts accepted as payment in full.
• Gross charges are 3x – 6x the real price, depending on the third party payor.
• Texas allows only evidence on actual price for past medical expenses. Law on price of future expenses not settled.
• Certainty of specific insurance coverage can be high (Medicare) or low (private policy)
• Collateral source rule may affect ability to discuss why charges and price are different.
• Defense may want repriced LCP to present with motion for reduction of verdict .
67 Ronald T. Luke Kacy L. Turner 512-371-8000 [email protected] [email protected]
