Services

Medical Malpractice

Our firm's economists provide consulting services in medical malpractice cases. Circumstances leading to these lawsuits are often tragic but expert opinions must still be grounded in sound science applied carefully to each case's facts.

Economic Damages

Our financial economists estimate economic damage - the current lump sum required to replace lost earnings and to provide for future care needs.

Both lost earnings and the cost of future care involve projecting out current dollar amounts into the distant future and discounting them back to present to determine how much money must be set aside today to cover future lost earnings and costs of care.

The resulting estimate of Plaintiff's economic damage is highly sensitive to assumptions made about the rate at which earnings and costs of care are likely to increase in the future and the rate at which these future dollars should be discounted back to the present.

Economic damage estimates in medical malpractice cases can be overstated by five or even ten times as a result of failing to correctly project out and discount back to present the lost earnings and costs of care.

Lost Earnings

To estimate the present value of lost earnings, financial economists estimate what an individual would have earned throughout their lifetime adjusted for taxes, costs and benefits. The earnings of current workers with various educational levels are often the starting point for these calculations.

Economists project current workers' earnings for various ages out into the future, accounting for inflation and productivity growth, to determine expected future earnings by education, gender and perhaps geographic region. This future value can be adjusted for mortality risk, for labor force participation rates and unemployment rates and then discounted to present.

Cost of Care

Estimates of the present value of future costs of care tend to dwarf lost earnings in medical malpractice cases and so warrant careful scrutiny.

"Life care plans" are provided by medical experts as evidence of the current cost of providing care at various ages. Financial economists rely on these medical opinions in determining the expected future costs of care. As with the current earnings scales, financial economists project out these current cost schedules into the future, assuming rates of inflation which may vary by category of expenditures and discount these future health care costs to the present.

While the difference in medical opinions about the cost of required care can be substantial, disagreement over the inflation rate to apply to these costs and the rate at which to discount future costs have the biggest impact on competing estimates of economic damage.

Future Value

Projecting out current earnings by educational attainment and various components of costs of care involve applying inflation rates which may differ from the consumer price inflation rate (CPI) reported in the news. Professional judgment is required to determine what inflation rates to apply to earnings and long-term care costs.

Even simply projecting out earnings and care costs at a general inflation rate requires professional judgment over whether to use observed inflation during some recent historical period or to use estimates of future inflation derivable from observable market prices.

... and Present Value

Ultimately, financial economists determine on how much money must be set aside today to replace future lost earnings and fund future costs of care. This determination depends on how the lump sum set aside will be invested, which itself is both well-settled in most jurisdictions and yet still disputed in the medical malpractice context.

Most states have passed a version of the Uniform Prudent Investor Act requiring trust assets to be invested as a prudent person would under the circumstances. In general, it is imprudent to invest a trust's entire assets in cash and Treasury securities, so it is inappropriate to discount fund future lost earnings and costs or care in medical malpractice cases using the risk-free interest rates. SLCG's financial economists determine the interest rates to discount future costs to present guided by modern portfolio theory's risk return tradeoff.