TEA: Volume 16 (2019)

TEA.16.0 – 2019. The Earnings Analyst 16: 125pp.

TEA.16.1CMS Health Care Price Projections and Issues for Economic Damages Experts.  Joseph I. Rosenberg and Sean P. KeehanEconomic damages experts regularly have the difficult task of forecasting health care price inflation, especially involving how much the cost of life care plans will grow over time in an unpredictable future.  This paper examines the strengths and weaknesses of two commonly used methods of forecasting the price of medical goods and services:  One is to use directly the 10-year price projections from the Office of the Actuary of the Centers for Medicare & Medicaid Services (CMS); the other is to forecast future price increases based on historical data for health care goods and services embedded within  the Consumer Price Index (CPI) published by the Bureau of Labor Statistics (BLS).  In this article, CMS and BLS health care price indexes are mapped to one another, definitional differences are examined, direct out-of-pocket spending is segregated from insurance-related spending, and the historical price growth rates for similar expenditure types are compared and analyzed.

TEA.16.2Methodological Consideration for Proper Life Care Plan Valuation: The Role of Medical Price Inflation Forecasts.  Scott GilbertOne of the methodological considerations for proper life care plan valuation is the choice of forecast for future increases in the cost of medical goods and services, as discussed in Trevino (2013). The present work examines forecasts based on the inflation rate for medical services component of the consumer price index (CPI). Unlike broad CPI, published consensus forecasts of medical CPI are unavailable, but simple forecast methods are available that can incorporate historical data. A simple forecast method is to use a “moving average” of current and past inflation rates when forecasting future rates. To identify suitable time windows for applying moving averages, forecast performance statistics are available including mean squared error and mean absolute error. Among moving averages, those based on a relatively short time window tend to perform better than those based on longer time windows in application to medical CPI inflation over the years 1948-2017. An opposite result holds when forecasting the gap between medical CPI and general CPI inflation rates, at long horizons: longer time windows of 10 to 20 years provide better forecasts of the long-horizon inflation gap.

TEA.16.3Litigation Expert’s Quandaries.  Michael J. O’Hara.  In the litigation context the law is the primary judge of ethics for those persons who contribute to the law’s processes.  Ethical quandaries routinely are generated via role conflict.  Quandaries routinely arise when actions of the agent ethically are the actions of both the agent qua principal (i.e., expert providing evidence in a legal process, thus the expert as “the law”) and the agent acting personally (e.g., expert providing testimony of personal opinion).  Who controls choice of ethical action in that context:  the principal or the agent?  Which ethical responsibilities flow to whom?  Expert witnesses encounter both unique and routine role conflicts in a litigation context.  These role conflicts spring from experts serving multiple masters (e.g., the law v. client v. profession).  The relative priority of these actors can be dynamic as well as conditional upon non-role attributes.  This article explores these issues from the perspective of the Federal Rules of Evidence for testimony by lay fact witnesses and for expert opinion witnesses.

TEA.16.4Terminal Value as an Economic Loss of the Self-Employed.  Gene A. Trevino.    This article introduces the concept of terminal value as an economic loss beyond the loss of earning capacity, to self- employed individuals that are precluded from selling their businesses upon retirement due to a personal injury.  Terminal value represents the value of a business following a discrete stream of cash flows.  In the case of a self-employed individual, the discrete cash flows would be the lost earning capacity over the plaintiff’s working life, and the terminal value would represent the value of the business upon retirement.  The total economic loss would be the present value of the lost earning capacity plus the present value of the terminal value.  Terminal value is a valid economic loss when a business earns an economic profit and the economic profit is transferrable to a hypothetical buyer.  Because terminal value represents the value of a business, it is calculated using business valuation methodology which entails discounting at a risk-adjusted discount rate.   In cases where a business earns transferrable economic profits, ignoring terminal value will underestimate the economic loss to the self-employed plaintiff.

TEA.16.5Estimating the Full Value of Household Services Damages:  Inclusion of Nighttime Protection and Care Services.  James A. Mills and Bernard F. Pettingill.    Lost household services are regularly claimed in actions involving personal injury or wrongful death. Economic damages experts will usually include calculations of the economic value of services, chores and assistance that the injured or deceased person would have provided to the household. The Dollar Value of a Day (2017) study generally groups these tasks into two subgroups: Household Production and Caring & Helping. There is, however, a third element to consider: Nighttime Protection and Care services. Nighttime Protection and Care services are those services that are immediately available during the night to respond to security emergencies and or to render assistance or care to household members. As explained by Landsea (2014), although this is a passive service, it has value, as do other household services which might be considered as active. Landsea described it this way: “The physical presence in the household of the service provider for the rendering of security, protection, and assurance of active services when needed.” This element of Household Services is one that has been admitted by courts and validated by juries but is often overlooked by forensic practitioners.

TEA.16.6Influential Observations:  The Statistical Treatment of Outliers in Forensic Analysis.  Sibylle Scholz, David Xu, and Glen R. StevickInfluential observations in a dataset are those that have a significant effect on parameter estimation when excluded.  In the social sciences, such data points can significantly distort results, leading to interpretations and conclusions that are erroneous.  Statistical considerations for excluding influential observations are presented here using an example in economics.  This example has two independent variables, but it would be applicable to other analyses having more variables.  The techniques considered here are particularly useful when there is more than one independent variable because the influence of one specific data point is not as obvious.

TEA.16.7Medical Malpractice Liability Reform and Attorney Incomes.  John PerryThere has been a longstanding interest in the impact of medical malpractice liability climates on health labor markets, expenditures, outcomes, and insurance markets. Little empirical research has investigated the effect of medical malpractice climates on the “other” side: attorneys. This paper seeks to address this weakness in the literature and investigates the impact of state-level medical malpractice reforms on attorney incomes using single and double-differences approaches. The results suggest that medical malpractice reforms are associated with material impacts on attorney incomes.

TEA.16.8Practice Notes.  William F. Landsea, Robert A. Male.  Probable vs Possible; Issues Related to Flawed “Review” Publication; Dealing with Challenges to Expense Growth Rate.