Is a Medical Malpractice Case Settled with a Lump Sum Payment?

Is a lump sum payment appropriate in a medical malpractice case? After all, these cases often involve compensation for losses that have not happened yet. If someone will need continuing medical care—whether future surgery, physical therapy, medication, or nursing care—that cost may be incurred years or decades after the lawsuit. Or if someone has been disabled, they will feel the effects for years to come.

If the costs won’t be incurred until the future, can the case be settled with a lump sum payment now? (As opposed to accepting payment over time?)

The answer is “yes”—malpractice cases can be settled with lump sum payments.

Reduction to Present Value—the Magic of Accounting

Any loss, cost, injury, or damages must be certain—at least to a reasonable degree of certainty—to be compensable. That also applies to future losses: even if they have not yet been incurred, it must be reasonably certain that they will occur. Their cost or magnitude must also be reasonably certain. If these criteria are met, compensation—including present compensation—can be awarded.

The accounting profession has a technique for figuring out the value now of money received in the future: “reduction to present value.” Let’s take an easy example. Someone sues and wins. One of the things they win is an award for the cost of surgery they will need next year. Say the surgery costs $10,000. Suppose that a reasonable rate of return for money invested now is 4% per year. Suppose also that inflation is running at 2% per year. Netting investment returns (which increase the value of today’s money) against inflation (which decreases it) results in a 2% gain. That means that to have $10,000 in a year, they need $9,803.92 now. Awarding the plaintiff $9,8093.92 is the same as giving him $10,000 next year.

The same principal can be used for any length or period of time—the math gets harder, and more assumptions (such as about inflation over long periods) have to be built in, but the principal is the same.

When to Talk to a Medical Malpractice Attorney

As you can imagine, actually calculating the value today of costs or losses that may not occur for years may be simple in theory, but in practice, can be very difficult. Experienced attorneys can help their clients understand what their case may actually be worth—including taking into account reduction to present value.