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"I understand small business growth. I was one."
New York Daily News, 19 February, 2000

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While there have always been economic and financial losses due to medical malpractice or other injurious "events", only in recent periods, especially via the use of computers and corporate financial techniques, has the economic loss been succinctly codified.

A loss of any type can basically be broken into three categories, namely - the initial loss from the "event", the intermediate and longer range financial loss, and the most overlooked part of the loss, namely the lost opportunity from being unable to grow. Put into other terms, an economic and financial loss can be broken out into categories or segments.

The initial loss obviously contains the loss of wages and income sustained by an individual based upon the occurrence of the "event". In addition to this and an integral part of the initial loss, one has to add the costs associated with the recovery or partial recovery from the "event". Transportation, personnel support, nurses and clinical therapists, medicine, special equipment and other items an individual would not have expensed their funds on must be added to or made part of the initial loss category. In addition, the loss of the use of money, namely interest costs that were lost from having funds expensed on special items must be added to and included in the total of the initial loss category.

In regards to the intermediate or longer range loss, here one must examine the overall diminishment in wages or income an individual will suffer based upon the "event". The wages and income are normally calculated from the day of the event until that individual's 65th birthday. Over this period of time, say (20) twenty years, an appropriate rate of inflation must be added to the income loss. This inflationary calculation must include a rate of inflation that is not only sustainable, but realistic in an era where prices, costs and benefits can change both in real, nominal and tax oriented basis in a short period of time.

An inflationary progression based upon a very low rate of inflation that may be predominant in the United States today is not a correct assumption for two fundamental reasons - a) a nation with a high degree of Federal Debt, like the United States, will surely have a reasonable rate of inflation over the next decade (or longer) in order to extinguish or control their debt obligations and b) the rate of inflation for health care or medicine in the United States has outstripped the overall inflationary rate for the past decade. Hence, if one is to calculate an inflationary loss based upon an "event" it is suggested that the rate of inflation explore and expose that segment wherein the individual might be affected in the future, rather than looking at inflation from many years past, without the specific medical influences.

Lastly, and probably the most overlooked segment of an economic loss, is the loss of the ability to grow and prosper into a higher or more productive level of society. If a medical or damage loss should occur to an individual who is in his 30's, for example, and that individual is presently an "assistant" manager in some form of business enterprise, then the loss will affect their ability to grow and earn a reasonable chance to become a "full manager". Hence, you really have a double economic loss, namely the loss of all or part of future wages and the "loss" based upon the inability to grow and earn wages into the next or a higher level of society.

The last loss category needs to be explained somewhat further, as it entails some significant economic impacts. A mid-level manager earning $40,000 a year would normally receive a wage increase based upon his/her overall performance with an inflationary influence over time. If their performance continues in a satisfactory manner, then that person would be promoted into a higher wage level category. In that new level of wages his/her wage base would increase faster via a higher base level upon which their increases would be based and a higher inflationary wage base level. Further, if they should continue to perform satisfactorily in their new higher level, then it is prudent to assume they would be promoted still further into the next higher level of income. If this chain or potential should be denied an individual due to an "event" loss, one must remember this category of economic loss contains a significant sum of lost opportunity income that must be outlined and included into a personal economic damage report.

In conclusion, the loss of income or potential wages from an "event" cannot be simply plotted or fed into a computer, inflated out into the future at a constant rate and totaled into a single stated figure. The loss must be broken out into at least the three categories noted above, with each category given specific attention in regards to promotional potential, wage growth rates and inflationary forces over time, by category.

  * Dr. Lehrer has been an economist and involved in preparing feasibility studies and reports and litigation support services for the past 15 hears. He has BS, MBA, MA and DPA degrees from New York Univ.