To compare compensation systems for birth-related injuries.
Retrospective cohort study.
Parents of children with birth-related injuries who filed claims that closed before August 1, 1995, with Florida's no-fault program (Neurological Injury Compensation Act [NICA]) or who filed tort claims that closed from January 1, 1986, to August 1, 1995.
Main Outcome Measure
Compensation for medical and income losses due to birth-related injuries.
Families who received tort settlements were overcompensated for the injury, considering all sources of compensation. By contrast, NICA recipients broke even. Those who did not receive tort or NICA compensation lost nearly $75,000 in the first 5 years following the birth. In the subsample of families of children with cerebral palsy, overcompensation by tort claim was even greater, whereas NICA recipients were undercompensated. The cost of care for cerbral palsy in both groups was the same. The difference between tort and NICA compensation levels was attributable to payment for income loss. Overall, NICA recipients were satisfied with compensation received.
Medical expenses were adequately covered under NICA, but not income loss. A universal health insurance program for children would not cover income losses. Similar costs incurred in NICA and tort systems suggests no rationing of care by NICA. Finally, absent some sort of targeted compensation, the losses experienced by families of children with birth-related injuries were substantial.
OUTCOMES OF the tort system are unpredictable in the assessment of liability and determination of damages.1 Insufficient predictability can lead insurers to charge high premiums, curtail insurance coverage, or withdraw altogether. The threat of withdrawal of coverage served as an impetus for Florida and Virginia to enact no-fault compensation programs for children with birth-related injuries.2- 4
Payments under the no-fault programs are made as care is provided, thereby conceptually addressing the concern that compensation for injuries is unpredictable and inefficient.5 Further, the programs are designed to include cases that could not meet liability standards of negligence. Fault is not determined, thereby eliminating time-consuming and expensive disputes and reducing stress endured by the injured child's family and the defendant physician. No-fault programs typically restrict payment for nonpecuniary loss and reduce the role of lawyers, thus allowing a given compensation budget to cover more injuries.6
Opponents of no-fault programs argue that the eligibility criteria for compensation of injuries are overly restrictive and that medical care compensated under no-fault programs is inadequate because those administering the program are primarily interested in conserving resources.7 If so, use of medical care services and associated costs should be lower than those for other similar cases paid by tort and other compensation mechanisms. Also, families of the injured children would be dissatisfied with the program because they would not be able to receive compensation for care they or their providers deem necessary.
Implementation of no-fault programs for medical liability first occurred for newborns with severe neurologic impairments in Florida and Virginia in 1988 and 1989, respectively. Both programs were structurally based on the Workers' Compensation model and were intended to create both new coverage for those who could not otherwise receive compensation and to reduce the expensive and unpredictable tort process that was threatening insurability of obstetrics.4 We focus on Florida's Neurological Injury Compensation Act (NICA) because the number of families compensated in Virginia is too small to provide meaningful results.
The NICA was created by 1988 statute and implemented for births occurring on or after January 1, 1989.8 Florida's program applies only to live infants weighing more than 2500 g and requires that the infant be "permanently and substantially mentally and physically impaired." Causation by "genetic or congenital abnormality" is explicitly excluded. The time to file a claim is limited to 5 years, reduced from 7 years during NICA's first few years. More than 80% of Florida's obstetricians have elected to participate in NICA.9 All private hospitals contribute to the NICA fund, but they are protected from tort liability only if the physician participates. Many hospitals pay for their physicians to participate.7 A patient must be told that the physician participates in NICA before labor and delivery for the child to be eligible for compensation. For eligible injuries, the no-fault statute was to be the "exclusive remedy."10 Tort claims may be made if the case is rejected by NICA. There is no bar to the claimant's filing a tort claim first.11 The NICA was designed to compensate a particular class of well-defined medical outcomes.
Retention of a lawyer is not necessary when filing with NICA. However, previous studies show that fully 93% of no-fault claimants use a lawyer.12 The process of deciding awards under NICA is quite rapid, occurring in a matter of months compared with years in the tort system.11 Claims with NICA are filed with a public entity, the Division of Administrative Hearings (DOAH), which must decide whether the injury falls within the statutory definition and what benefits are appropriate within 45 days of the claim being filed. The DOAH has 60 to 120 days to hold a hearing in disputed cases. The median number of days from injury to NICA claim resolution has been 899, compared with 1322 for comparable tort cases.11 Approximately 60% of those filing with NICA receive no compensation, and 27% of these go on to file a tort claim.12 Individuals filing with no-fault programs have been found to be significantly less likely than those filing tort claims to be seeking retribution and to be significantly more interested in covering the cost of medical care.12
We herein address the debate about the adequacy of and satisfaction with no-fault compensation by examining how the cost of NICA-compensated cases compares with that of similar tort-compensated or noncompensated injuries; how NICA compensation compares with tort or no compensation; and satisfaction with NICA.
During 1996, we conducted detailed interviews of persons who had submitted claims to NICA, regardless of whether they received compensation, and persons with tort claims for birth-related injuries in Florida that closed from September 1, 1989, to August 31, 1995 (hereafter referred to as recently closed cases or claims). Birth-related injuries in this sample occurred from January 1, 1984, to December 31, 1993. In addition, we had data from a sample of 127 families whose tort claims closed from April 1, 1986, to August 31, 1989.13 The NICA claimants were identified through the NICA program and the DOAH (n=157). The tort claimants were identified through the Department of Insurance and court records (n=72). After accounting for those claimants who could not be located (38%), and those for whom the lawyer refused study participation for the respondent (7%), the response rate for NICA claimants and claimants with recently closed medical malpractice claims was 90%. The completion rate for the sample of earlier malpractice claims was 73%. The primary reason for not participating in the later survey was not wanting to "relive all we went through."
The survey instrument for all claimants obtained the following types of information: medical (including clinical history, description of events leading to the injury, and description of the injury itself); legal (including use of a lawyer, how the claimant came in contact with the lawyer, financial arrangements with the lawyer, and demands for and offers of payment); cost (including various expenses associated with the injury); compensation and allocation (including amounts of compensation received from various sources and how funds were spent); satisfaction with the system; and background (including educational attainment, family income, and race).
Reports from the Department of Insurance provided detailed information, including stage at which the claim was resolved, indemnity paid on behalf of the defendant, cost of defending the claim (loss adjustment expense), and estimated economic loss.
Eligibility for NICA is restricted to a subset of neurologic injuries. For example, in Florida, low-birth-weight infants with severe neurologic damage are not eligible for NICA compensation. Therefore, to compare NICA claimants with tort claimants and those not receiving compensation by either system, we first determined whether each tort case and NICA-denied case might have been eligible for NICA compensation based on the objective NICA injury criteria (hereafter referred to NICA eligible). We ignored whether a case met the NICA nonmedical requirements (eg, the family was not told about NICA at the appropriate time or the physician was not part of the program) and genetic history. Those compared in the NICA-denied category were those denied for nonmedical reasons. The eligibility raters were unaware of the final compensation decision. To better control for severity of injury differences, a subsample of cases involving cerebral palsy was analyzed separately.
Cost of care differs by the severity of the injury incurred. Therefore, each case was rated according to the following 4-category scale used in a previous study of closed claims in Florida13: (1) children with mild impairment, including Erb palsy and other limited-scope permanent physical injury; (2) a severe mental or physical problem, but not both; (3) serious cognitive impairments and limited mobility (children with serious ailments of the lungs, heart, or kidneys, but who may be somewhat more mobile, were included); and (4) children who were unable to feed themselves, crawl, or sit up without assistance. Florida uses a 9-point severity scale, with 1 through 4 indicating temporary injuries and 9 indicating death. Our severities 1 through 4 correspond with Florida's severities 5 through 8. Cases where the infant died at birth were considered separately because there are no future cost projections.
All cost estimates were based on data collected in the survey concerning use of health services and translated into costs. We did not rely on respondents to remember exact cost of services. Included in the measure of cost of medical care were hospital stays, physician visits, therapy (physical, occupational, recreational, and speech), visits to mental health professionals (social workers, psychologists, and psychiatrists), care provided by home health care agencies, special diets, prescription medications, nonmedical assistance related to the injury, and psychiatric help for parents. These data were collected for the year before the survey and for the birth year. When a substantial number of respondents paid for the service completely out-of-pocket and reported the cost, we used these figures in our calculations. When total cost information could not be extracted from the surveys, we used secondary data for the average costs of the services.14,15 We multiplied reported service use by the cost of the service.
To obtain mothers' lost income, we subtracted income of the year before the birth from income of the year following the birth. To account for the fact that some women do not return to work following a normal birth, we examined a representative sample of Florida births to observe the proportion of women expected to return. The additional percentage not returning to work in our sample was multiplied by the total income loss to arrive at income loss attributable to poor health of the child. Alternatively, we calculated the hours of informal care the child needed at the average wage of the mother before pregnancy ($8.96/h). We based hours of care on conservative estimates from previous studies.13 Fathers' lost income the year following the birth was obtained from the survey. We did not include loss that may have incurred after the birth year for fathers.
Costs for the most recent year were carried forward for each case until the injured child was 5 years of age, using life tables to account for the reduced life expectancy of the child. In no case is the birth year and most recent year the same. Medical costs in the second year of life predict medical costs through the preschool years or during the first 5 years of life.13 Severity rating and life tables from the peer-reviewed literature were used to obtain estimates of life expectancy.16- 18 Some families altered houses or vehicles due to the disabilities of the child. The expenses were assumed to have been incurred at the time of the birth and are included in our total cost estimates during the first 5 years of life. We did not include expenses for new homes or vehicles.
All compensation figures were net of fees to lawyers. Tort or NICA awards that went to the family were recorded. All NICA compensation is provided as expenses are incurred, whereas tort payments are intended to cover the lifetime cost of the injury. To compute a payment amount for the first 5 years of life for tort recipients, we divided the tort award, excluding lawyers' fees, by the child's life expectancy at birth and multiplied by 5. To compute payment amounts for NICA recipients during the first 5 years of life, we examined the amount paid to date and projected the amount to be paid to 5 years of age. Some families receive other forms of public aid for their disabled child, ie, the nutritional program for Women, Infants, and Children (WIC); Social Security; welfare; housing; or food stamps. We assumed that welfare payments received during the year before the interview reflected the amount received each year of the child's life. Our projections accounted for the child's survival probability. We used a real discount rate of 3% for all compensation across the entire time.
Tort cases judged potentially NICA eligible were most similar to NICA-accepted cases, compared with NICA-denied cases and tort cases judged to be NICA ineligible (Table 1). Our NICA eligibility raters tended to err on the side of judging cases to be eligible for NICA. Whereas the raters correctly predicted those claims that NICA accepted, they found 30% of those that NICA rejected to be eligible for coverage. The NICA-accepted group differed from the other groups in ways that predict poor birth outcomes.19 The mothers of NICA recipients were significantly more likely to be single at the time of interview and the birth, less educated, and nonwhite. Cases accepted by NICA were more severe on average than those not accepted. Whereas mean family income at the time of birth was similar among the 4 groups, current family income was significantly lower for NICA recipients. The NICA recipients were less likely to report having their case refused by a lawyer, and 3 reported not hiring a lawyer at all.
We compared the cost of injuries compensated by NICA with costs of NICA-eligible claims that were denied or were compensated by tort award. The total per capita expense for NICA recipients was significantly higher than that for NICA-eligible tort recipients ($200,205 vs $115,352 during the first 5 years of life) (Table 2). No significant difference in cost was identified between NICA-compensated and unsuccessful NICA-eligible claimants. The largest components of medical care costs for injured children during the first 5 years of life were hospital, physician, therapy, and formal care. Tort recipients had significantly lower expense for hospital care, therapy, and prescription drugs than NICA recipients. Hospital cost was highest in the first year of life, with the cost of physician visits replacing hospital costs in importance during the second year and beyond.
Recipients of NICA had the greatest reduction in income and tort recipients had the least ($34,815 vs $11,697) when income loss was calculated as predicted earnings minus actual earnings (Table 2). Unsuccessful NICA-eligible claimants experienced losses similar to those of NICA-eligible tort recipients ($13,563 vs $11,697). In addition, we found that the adjusted lost income increased with the child's age by $2000 to $4000 per year. Lost income was dramatically larger when informal caregiving hours were used to calculate amount spent on care provision ($60,954, $53,094, and $58,383 for NICA recipients, unsuccessful NICA-eligible claimants, and NICA-eligible tort recipients, respectively), with very little difference among the 3 groups. The more conservative estimates were used in our totals. Fathers' reported lost income in the child's first year of life were minimal: $2424 for NICA recipients; $6563 for unsuccessful NICA-eligible claimants; and $1112 for NICA-eligible tort recipients.
Cost was highest for NICA recipients, but the converse was true for payment from personal funds (Table 2). Unsuccessful NICA-eligible claimants paid 4 times more out-of-pocket during the first 5 years of life than NICA recipients ($86,233 vs $19,548). The NICA-eligible tort recipients paid approximately $12,000 per year more out-of-pocket than NICA recipients. The NICA recipients paid 9.8% of their total medical expenses out-of-pocket, whereas unsuccessful NICA-eligible claimants paid 47.5% and NICA-eligible tort recipients paid 27.0% out-of-pocket. The differences in out-of-pocket expenses were seen in almost every medical expense category, with hospital expenses again demonstrating the most dramatic differences. Unsuccessful NICA-eligible claimants paid 55.2% of their hospital bills out-of-pocket, and NICA-eligible tort claimants paid 29.1%, whereas successful NICA claimants paid almost none of their much larger hospital expenses out-of-pocket.
Recipients of NICA experienced the greatest total loss, with unsuccessful NICA-eligible claimants experiencing slightly less ($238,789 vs $198,433) and NICA-eligible tort claimants experiencing the least ($129,532) (Table 3).
After implementation of NICA, mean tort awards during the first 5 years of life dropped from $255,665 to $161,016 (Table 3). The latter amount brings the tort awards closer to the amount NICA recipients received in compensation during the first 5 years of life ($161,016 vs $123,121, excluding legal fees) (Table 3).
Health insurance other than NICA paid $57,537 for the medical care of NICA recipients during the first 5 years of life. Health insurance paid for $84,207 for the medical expenses in the first 5 years for NICA-eligible tort recipients and $95,311 for unsuccessful NICA-eligible claimants (Table 3).
Unsuccessful NICA-eligible claimants had the highest proportion of children covered by private insurance (56%), whereas those covered by NICA had the lowest share (34%) (Table 3). More than half of the NICA-eligible tort recipients of recently closed claims were uninsured. More than one third of NICA recipients and unsuccessful NICA-eligible claimants received Medicaid. The NICA recipients and NICA-eligible tort recipients with recently closed claims received comparable welfare compensation (WIC, Social Security, welfare, housing, and food stamps) at $52,465 and $58,143, respectively, or approximately $10,000 per year. Unsuccessful NICA-eligible claimants received approximately half this amount.
In sum, although there was not a tremendous difference in the size of the NICA compensation and recent tort awards, after 5 years the tort recipients realized a net gain of compensation over loss of $133,745, whereas NICA recipients lost $5667. The difference reflected a combination of NICA recipients having more costly care (by about $70,000), a lower award (by about $40,000), and less insurance coverage (by about $26,000 in benefits). Unsuccessful NICA-eligible claimants lost, on average, nearly $75,000 during the first 5 years of the child's life. The award sizes for respondents did not differ significantly from award sizes of nonrespondents.
When we limited our sample to the families of the 54 patients with cerebral palsy, the medical expenses for NICA recipients, unsuccessful NICA-eligible claimants, and NICA-eligible tort recipients were remarkably similar ($235,435, $234,109, and $220,959, respectively) (Table 3). Total loss was still highest for NICA recipients. The NICA-eligible tort recipients with recently closed claims were less expensive by approximately $45,000 during the first 5 years of life.
Combining medical expenses, housing and vehicle alteration, and income loss and accounting for all sources of compensation, NICA-paid families of children with cerebral palsy lost $31,546 in the first 5 years of the child's life. Unsuccessful NICA-eligible claimants lost $92,037 during the same period. The NICA-eligible tort recipients gained $157,189 when all recipients were included or $283,921 when only claimants of recently closed cases were included.
Recipients of NICA reported higher rates of satisfaction with the care received than unsuccessful NICA-eligible claimants or NICA-eligible tort recipients (Table 4). More than half of the NICA recipients reported being very satisfied with the care that they received, whereas less than a third of both other groups reported this level of satisfaction. A quarter of the NICA recipients reported that the care that their child received would have been worse without NICA. They reported that they would not have been able to afford the therapies and equipment, that they would not have been able to keep the child at home, and that the child would not have lived as long. Conversely, 7 (19%) of the NICA recipients reported not receiving some medical care recommended by a physician because the family did not have enough money or insurance. This compares with 4 (25%) of the unsuccessful NICA-eligible claimants and 1 (10%) of the NICA-eligible tort recipients.
Our total loss estimates are conservative for 2 reasons. First, the estimates include the more direct loss of the mother's wages rather than the informal care loss. Second, we included only vehicle and home alterations, not the cost of new vehicles and homes. The necessity of new homes and vehicles for children with birth-related injuries is debated. If these costs had been added, the mean cost was approximately $2676 for new vehicles and $14,395 for new homes. There were no cost differences among the groups examined.
Use of medical care services and associated costs were the same or higher for cases compensated under the NICA program. Results from the subsample of families of children with cerebral palsy indicate that use of services were virtually identical. There is no indication that health care services are restricted under NICA. These results counter arguments that no-fault programs are too medically restrictive. The medical care of tort recipients is not restricted in any way.
Tort recipients were compensated for more than medical expenses and income loss; NICA recipients experienced a slight loss. When we examined the subsample of families of children with cerebral palsy, the gain of tort recipients increased, as did the loss experienced by NICA recipients. The mean loss of NICA recipients with cerebral palsy of $31,546 was approximately $3000 less than the mean adjusted income loss for NICA recipients during the first 5 years of life. These results indicate that whereas medical expenses were well compensated under NICA, other losses that a family experiences due to caring for an injured child are not compensated.
Sloan et al13 found overcompensation for tort cases in only 20.9% of the cases. Our results illustrate overcompensation in the tort system. Our sample is unique in that we considered only those cases that would be eligible under NICA. Our analysis differs because we include other forms of compensation aside from the tort payment and because we do not project costs for the life of the child. A large cost component of the analysis by Sloan et al was for special education, nursing home care, and therapy for the child. These costs are not as substantial during the first 5 years of life. The reason for not projecting cost and compensation for the life of the child are because NICA is a new program that has not yet had a chance to demonstrate how it will compensate for costs later in a child's life and because such projections make controversial assumptions.
THERE IS bipartisan congressional and presidential support for improving children's health by expanding access to insurance coverage for children nationwide.20 Programs like the Florida and Virginia no-fault programs would not include compensation for income losses experienced by families with disabled children. However, 89% of children who do not have health insurance live in working families.20
Given that compensation received through NICA is adequate to cover necessary medical expenses, satisfaction with the system of care is critical. Opponents of no-fault programs state that such systems are by nature dictatorial and therefore unfair to families. Our data indicate that most families receiving NICA compensation are generally satisfied with the compensation received. Although adequate statistical power to detect differences in the satisfaction was lacking, NICA recipients appear to be at least as satisfied as the other groups with the care covered by NICA.
This analysis did not include noncompensated tort claimants. Most tort claims are settled outside the courtroom, and approximately 47% receive no compensation.13,21 The cases that were denied coverage from NICA can be considered representative of families with an injured child who receive no compensation. The NICA claims were denied coverage due to the severity or causality of the injury, birth weight below 2500 g, or nonparticipating physicians.11 The mean age of the children in this group was 4.4 years, so it is unlikely that many of these families would have filed lawsuits later, given Florida's 5-year statute of limitations. The amount paid out-of-pocket by these families was large: $74,579 during the first 5 years of the child's life and $92,037 when the child had cerebral palsy. These results illustrate the need for some form of additional compensation not currently being provided by tort or no-fault programs.
If no-fault compensation were raised by $30,000 to $50,000 in 5 years to cover losses other than medical, families would be able to receive more complete compensation at a cost that is substantially less than that of the tort system.6,11 Such savings could be used to compensate more injuries.
Our data indicate that those who receive no compensation experience great financial burden. When reform is considered, society must decide whether the compensation process of one system is more equitable than that of the other. The tort process is lengthy and painful for physicians and often for families. Legal fees consume a substantial portion of the available funds. The manner in which the tort award is distributed makes it difficult to judge how much money is needed to provide for the child. Under the tort system, recipients may spend the award in ways that do not benefit the injured child. No-fault compensation pays directly for specific expenses as they are incurred, thereby providing greater predictability of payments. However, the tort process allows families a greater opportunity to learn of the events that led to the injury, and the compensation when payment is made is greater on average.
Previous work demonstrated that under no-fault programs, lawyers receive much less of the total award, ie, 3% vs 39% under the tort system.6 Following the first year of NICA, the mean amount paid in legal expenses per case by the agency on behalf of the claimants was approximately $2500 and paid on behalf of the agency was approximately $4000.6 Such no-fault legal expenses are trivial when compared with an estimated payment to plaintiffs' attorneys of $151,000 per tort case from 1989 to 1991, which, based on the allegation on the claim form, satisfied the statutory criteria for eligibility for no-fault coverage.6 However, a major complaint about the no-fault programs for children with birth-related injuries in Florida and Virginia is that the programs cover so few children.22 In Florida, an estimated 479 children suffered from birth-related injuries annually, and only 13 are covered by NICA. The Virginia program is even more restrictive in its criteria for coverage, resulting in an even smaller number of families receiving compensation.
Further analysis is needed to evaluate and understand the magnitude of the effect of no-fault programs on the tort system, satisfaction of physicians and lawyers with no-fault programs, the quality of care that was provided at the time of birth to children who receive NICA compensation, and the administrative burden of the no-fault system.
Accepted for publication June 30, 1998.
This work was supported in part by a grant from the Robert Wood Johnson Foundation, Princeton, NJ.
We would like to thank Peter Rankin, MA, and Shin-Yi Chou, MA, for their efforts in linking the various pieces of data and Peter Siwinski, JD, and Paul Friedman, JD, for their data collection efforts.
Reprints: Kathryn Whetten-Goldstein, PhD, Center for Health Policy Research and Education, Box 90253, 125 Old Chemistry, Duke University, Durham, NC 27708 (e-mail: firstname.lastname@example.org).
Editor's Note: This NICU to NICA (vs tort) study provides some interesting information about compensation for birth injuries. I guess the bottom line is that there never can be real compensation for the children involved.—Catherine D. DeAngelis, MD
Whetten-Goldstein K, Kulas E, Sloan F, Hickson G, Entman S. Compensation for Birth-Related InjuryNo-Fault Programs Compared With Tort System. Arch Pediatr Adolesc Med. 1999;153(1):41-48. doi:10.1001/archpedi.153.1.41