Forecasting Medical Costs in Tort Cases: The Role of the Economist

Economists have frequently been employed by attorneys to estimate future medical costs arising from an injury. But their role has been quite limitedconsisting of projecting into the future current medical costs provided by a medical specialist or lifecare planner and then discounting future costs back to the present. The author believes that such a role is far too limited, and argues that economists should question cost estimates of medical specialists. Further, in some circumstances, it may be appropriate for the economist to make his or her own calculation of medical costs independent of estimates made by other experts. I. Introduction There are three basic economic losses considered by the courts in a tort case when an injury occurs--wages and fringe benefits, household services, and medical costs. Traditionally, economists have been hired by attorneys to estimate the first two of these categories of costs, whereas medical experts and/or lifecare planners have been hired to estimate medical costs. The process of estimating medical costs in a court case can be roughly outlined as follows (Brookshire and Smith, 1990). A medical expert determines the kinds of medical goods and services required per time period, the number of time periods, and the initial cost of these goods and services. The economist then applies a relatively simple analytic technique--the costs of goods and services are projected into the future according to a standard med;cal care index and then discounted back to present value. It is this author’s opinion that the economist’s role, as described above, is too limited. The purpose of this paper is to examine the benefits of an increased role for the economist in estimating future medical costs. In order to provide more relevance to the paper, there will be periodic references to medical costs arising from spinal cord injuries. The reasons for choosing this impairment are that many court cases involve spinal cord injuries, and there are good data available on costs of treatment and on life expectancy for these individuals. Specifically, the paper will discuss the following: 1. A conceptual model for the purpose of estimating future medical costs. 2. The basic types of costs that are normally included under the heading of medical costs. 3. The fundamental concept of incremental cost in relation to future medical costs.