Deposition 2 - Deposition of expert witness by plaintiff in med mal suit

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BY MS. UNGER:

Q. Would you please state your full name for the record, please.

A. Stan V. Smith.

MS. UNGER: Let the record reflect that this is the discovery deposition of Stan V. Smith taken pursuant to notice and scheduled to begin here at 9:00 a.m. For the record, it's now a quarter to 10:00, and the witness has been meeting with plaintiff's counsel.

I must leave this deposition at 11:45 to pick up my child from school. If I am not able to finish the depositionbecause of this time restraint, it will need to be rescheduled by court order, if necessary.

BY MS. UNGER:

Q. Mr. Smith, I have had what I have been provided by plaintiff's counsel marked as Exhibit 1. Is this a copy of your curriculum vitae?

A. Yes, but it's an older one.

Q. Do you have a recent one with you?

A. Yes, I can give you a more updated one. Do you want to change the sticker?

Q. Yes, why don't we do that. You have now given me a new document that I'm just seeing for the first time that we have changed the sticker and marked as Smith Exhibit No. 1. This is a current and up-to-date version of your curriculum vitae?

A. Yes.

Q. Is the change in this that you have now received your Ph.D.?

A. Yes.

Q. And that was something that you were working on and was reflected in your prior CV as something that you were working on but had not yet completed?

A. Correct.

Q. When did you obtain your Ph.D.?

A. All requirements were completed in June of -- about a year ago, '97.

Q. And you received that Ph.D. in economics from the University of Chicago?

A. Yes.

Q. Is everything else in your CV the same as it was in the prior CV?

A. Yes.

Q. There are no additional articles or anything on here that I don't have to go through it at length?

A. There's nothing deleted or amended, there's just things added to it. I probably have one or two more presentations.

Q. So anything on here -- there's a couple of, I guess, I don't know if they're articles or presentations that are from 1997, those are new; is that right?

A. The old one I think was -- what, for example?

Q. On the very last --

A. Right.

Q. -- I guess article, the value of life to close family members, calculating the loss of society and companionship?

A. Right.

Q. Jury verdicts in drunken driving cases?

A. Right.

Q. Measuring the loss of enjoyment of life in personal injury cases in Washington?

A. Yes.

Q. Hedonic damages trial news, that one?

A. Right.

Q. You are the sole owner of Corporate Financial Group, Ltd.?

A. Yes.

Q. That's a corporation, but you're the sole stockholder?

A. Yes.

Q. Are there any other economists that work for Corporate Financial Group?

A. No.

Q. So this is really your personal company?

A. Yes.

Q. You have, I assume, some staff there?

A. Yes.

Q. No other economists, no other professionals but yourself?

A. Correct.

Q. What percentage of your work is in the legal field?

A. The great majority, about 80 to 90 percent, depending upon the year.

Q. How much of that is litigation related?

A. Well, anything in the legal field is litigation related.

Q. Well, not necessarily.

A. For me.

Q. Okay. That's my question.

A. What else would be in the legal field?

Q. You could value businesses for purchases and sales. There's all kinds of things you could do.

A. I do that, but I don't consider that part of the legal field. That's straightforward economic and financial consulting.

Q. So when you're talking about the legal field, you're talking about litigation services?

A. Correct.

Q. That's what, 90 percent or so?

A. Eighty to 90, depending on the year.

Q. This year?

A. Probably right in the middle there.

Q. The other 10 to 20 percent?

A. Economic financial consulting with closely held businesses. There's a few research projects that I'm undertaking, some investment projects that I manage as a principal.

Q. Having received your Ph.D., is it your intention to change the kind of work that you're doing or do you intend to have that remain the same?

A. There's been no company plan changes as a result of that.

Q. How much of your expert work is done in the state of Illinois?

A. Probably about 10 percent.

Q. Is there a reason for that?

A. Well, what's the point of view, so much or so little or what?

Q. You live in Illinois?

A. Yes.

Q. So to me it sounds like so little.

A. I have a national reputation. My work extends from Hawaii to Massachusetts, from Florida to Alaska.

Q. Is the fact that hedonic damages is not accepted in Illinois a reason for that?

A. That's an incorrect statement. Hedonic damages is alive and well in Illinois, especially in Madison County and Saint Claire County and other counties.

Q. But not in the Chicago area communities?

MS. RAYMOND: Objection. Calls for a legal conclusion.

A. It's been admitted in McHenry County.

BY MS. UNGER:

Q. Is it fair to say that you testify about hedonic damages in most of the cases that you're asked to testify about?

A. No.

Q. What percent?

A. Probably one-third or so.

Q. What's the other two-thirds?

A. All sorts of damages, commercial damages, personal injury, lost wages, medical, household services.

Q. Life care plans, the cost of that sort of thing?

A. Yes.

Q. What do you charge for your legal services in terms of your -- strike that.

What is your fee for working in the litigation field?

A. It's $255 per hour.

Q. Do you have some kind of a flat rate for an economic analysis?

A. When I do one, yes.

Q. I take it you've worked before with Chessick's office?

A. Yes.

Q. How many times?

A. Probably one or two cases a year over most of the '90s.

Q. Those have been personal injury cases?

A. Yes.

Q. What is the percentage of your work in personal injury cases that is for plaintiffs?

A. About 80 percent.

Q. Twenty percent for defendants?

A. About.

Q. How long has that been true?

A. It's been -- the percentage for defendants has been increasing over the last ten years.

Q. So before it was even less than 20 percent?

A. Correct.

Q. What was it, say, five years ago?

A. Fairly similar, but in the early '90s it was less.

Q. Do any of your articles or presentations relate to any of the issues in this case?

A. Well, the issues in this case are fairly broad, at least from my point of view, regarding economic incentives. I don't recall having an article directly on point.

Q. So the answer would be no?

A. Not that I recall.

Q. Have you ever testified at a deposition or trial against an HMO?

A. I don't recall. It's likely that an HMO may have been the defendant in a number of the medical malpractice cases in which I've testified.

Q. As you sit here today, Mr. Smith, have you ever testified against an HMO? I didn't ask you whether they have been in a case that you've been involved in.

A. I said as a defendant, it's likely they've been in cases. If I've been on the plaintiff's side -- is that what you mean by testified against?

Q. No. Have you ever testified where you had opinions against an HMO?

MS. RAYMOND: Asked and answered.

A. Oh, as opposed to a physician? I don't believe so.

BY MS. UNGER:

Q. Have you ever, prior to being retained in this case, done any work evaluating an HMO?

A. No. Well, let me take that back. I consulted for Madison General Hospital and an HMO that was associated with them in the mid '80s.

Q. What was the nature of that evaluation?

A. Looking at the financial relationship between the hospital and the HMO. I was basically consulting for the hospital in seeking to establish for-profit services, and that included their relationship with the HMO.

Q. So you worked for a hospital evaluating its relationship with an HMO?

A. Correct.

Q. Was that involved in litigation?

A. No.

Q. Any other time that you have had anything to do with the economic analysis of an HMO?

A. Not that I recall.

Q. How about the economic analysis of any other entity related to the health care field?

A. Well, Madison General Hospital.

Q. Other than that one.

A. Not that I recall.

Q. So no prior work in the field of managed health care?

MS. RAYMOND: Objection. Mischaracterizes his testimony.

A. Yes, Madison General, not that I recall.

BY MS. UNGER:

Q. You mean other than Madison General Hospital, not that you recall?

A. Correct.

Q. Is this case the first time that you have reviewed financial records of an HMO?

A. I don't believe so. I believe I've also reviewed the records in the Madison General matter, but the first legal case, yes.

Q. Okay. We're talking over each other. Other than the Madison General, this is the first time?

A. Yes.

Q. You were not asked in this case to calculate any of the plaintiff's damages; is that true?

A. Correct.

Q. You have no background in medical training, do you?

A. Correct.

Q. So you are not here to talk about the standards of care with respect to any of the medicine involved in this case, true?

A. Correct.

Q. You are not here to talk about any medical ethics, are you?

A. Correct.

Q. You are not an accountant, true?

A. Correct, although I've had training and courses in accounting.

Q. I'm sure you are far beyond me in that, but you are not licensed as an accountant or certified as an accountant, true?

A. Correct.

Q. You have when we got here this morning showed me your file in this case. This material that I have in front of me is everything that you've reviewed for this case?

A. Yes.

Q. And it contains all of your own -- do you have any notes in here?

A. No.

Q. Did you make any notes?

A. No.

Q. And you didn't issue a report of any kind in this case, did you?

A. Correct.

Q. You've reviewed the service agreement between Dreyer Health Plans and Dreyer Medical Clinic?

A. Yes.

Q. You have in here the deposition of Richard Lutz; did you read that?

A. Yes.

Q. The deposition of John Potter; you read that?

A. Correct.

Q. Plaintiff's answers to 213(f) and (g) interrogatories, did you read those?

A. Yes.

Q. Did you read all of them or just the one that showed your own opinion?

A. I think I scanned the whole document.

Q. What have you been told by plaintiff's counsel about what this case is about?

A. Well, I believe it's a medical malpractice claim involving the death of a woman who was under treatment at the HMO for some period of time.

Q. Under treatment at the HMO? Is it your understanding that she obtained her medical treatment at an HMO?

A. Either the clinic or the HMO, one of the two entities. I'm not involved in assessing what her losses were.

Q. What kind of HMO is Dreyer HMO? Is it a staff model HMO?

A. I don't understand what you mean by staff model.

Q. Is it a staff model HMO, do you know what that means?

A. No.

Q. Is it an IPA model HMO, do you know what that means?

A. No.

Q. Anything else that you know about what happened in this case?

A. That the plaintiff ultimately died from complications related to her heart.

Q. When were you first contacted in this case?

A. I opened a file in February of this year, so approximately that time.

Q. Who contacted you?

A. Mr. Chessick.

Q. In the prior cases that you've worked on for Mr. Chessick, were you preparing life care plans, that sort of thing?

A. I don't prepare life care plans.

Q. Studying economics of life care plans?

A. Sometimes.

Q. Can you recall?

A. Actually, I don't recall whether -- I would say my recollection is generally that it's earnings, losses, things like that. I don't know if I've ever analyzed a life care plan.

Q. But it's always been limited to the damages in a case?

A. Correct.

Q. What did Mr. Chessick tell you at the time that he first contacted you in February of 1998?

A. That he wanted me to review the service agreement and the depositions and related documents regarding the Dreyer Clinic and the HMO, and to tell him what I thought might be the conflicts between the -- as a result of the ownership of the clinic ultimately by the physicians and the ownership of the HMO by the same group of physicians and the conflict that may arise from the financial incentives that are in the service agreement.

Q. What do you mean by conflicts?

A. Well, from what I understand of the way the ownership is structured and the service agreement is structured, every dollar saved by the HMO ultimately goes into the pockets of the owners of the clinic. So there's a financial incentive to minimize treatment.

Further, from the documents that I saw, for example -- let me see if I can find it. Even in the marketing materials to the individual -- prospective individual participants of the HMO, it's made clear that it's the physicians of the clinic that will be directing their treatment.

Q. And as an economist, how is it that you believe you have an expertise to talk about financial incentives and conflicts for physicians?

A. Well, all of economics is really the study of economic behavior and what is it that motivates behavior in terms of economic incentives. That's the principal theory of economics.

Q. But you don't know anything about the medical treatment, true?

A. That's correct. I'm just saying there's an incentive, however acted upon or not, there is an incentive to make as much money as possible for the clinic, because the people who manage the HMO are ultimately the people who benefit from maximizing the profits of the HMO.

Q. What you've just stated to me, is that essentially your opinion in this case?

A. Yes.

Q. Is there anything else other than what you've just told me that would sort of state what your opinion is in this case?

A. I don't believe so.

Q. What is capitation?

A. It's the amount received by the HMO per number.

Q. It's the amount of money received by the HMO?

A. Paid to the doctors of the HMO.

Q. Where do you get this information?

A. My general understanding.

Q. Have you ever taken any courses in managed health care?

A. No.

Q. And you've never studied any other HMOs?

A. Not beyond what I indicated earlier.

Q. Have you ever read any particular articles, books, publications about managed health care?

A. No.

Q. So in your --

A. When you say articles, there's a fair amount that has appeared in financial publications, such as the Wall Street Journal and other financial publications, that I've read over the years as the HMOs began emerging in I believe the early '80s.

Q. And you read them as a member of the public like anyone else would?

A. Correct.

Q. You never took any technical courses or had any technical training or involvement in analyzing the economics of HMOs or managed health care, right?

A. Correct.

Q. So your knowledge of capitation, you stated that it was the amount the HMO receives each month, and then you change that to mean what?

A. My understanding is the amount paid -- I believe it's the amount paid to the HMO for each of the members, subscribers or clients, however you want to name them.

Q. You think it's the amount paid to the HMO?

A. Yes.

Q. From whom?

A. Ultimately whoever pays on behalf of the participants.

Q. What is global capitation?

A. I don't know.

Q. What is risk sharing in managed health care?

A. I can't explain that.

Q. What does passing of risk mean?

A. I don't know.

Q. Do you know how any other HMOs work other than this one?

A. No.

Q. And you know how this one works based on the materials that you have, which we didn't finish going through, but I had started to list what you've reviewed, right?

A. Yes.

Q. The remaining materials, if I could just have them back a moment.

A. Sure.

Q. The remaining materials that you have in your file are the AT&T medical plan and HMO comparison guide from 1992?

A. Yes.

Q. An HMO provider directory, true?

A. Yes.

Q. Something that appears to be the same thing as the AT&T medical plan HMO comparison guide, a second copy of that. You have the Dreyer Health Plan HEDIS report from 1994?

A. Yes.

Q. You have some memoranda, you have the HEDIS report from 1992, right?

A. Yes. I'll just say generally you can list them, and I'll just say yes at the end rather than going back and forth.

Q. And you have a number of monthly financial statements; is that true?

A. Yes. If you give out the long list, then I'll just say yes at the end. That's probably easiest.

Q. And these were all documents that were provided to you by plaintiff's counsel?

A. Correct.

Q. And this was sometime after February of 1998?

A. Correct. Did you include this, the patient's bill of rights?

Q. Okay, the patient's bill of rights. You made some markings on these?

A. Right.

Q. Those are your arrows?

A. Yes.

Q. Is there some particular reason?

A. Well, the existence of the business relationships between the owners of the clinic -- between the Dreyer Clinic, the HMO, and the owners of the clinic, I think that financial relationship is something that would have needed to be disclosed under the patient's bill of rights numbers seven, eight and ten, and the incentives in the service agreement.

MS. UNGER: Would you read that back.

(Answer read.)

BY MS. UNGER:

Q. And that was your purpose for making arrows here?

A. Correct.

Q. So are you here to testify about the HMO's duty of disclosure to the patients?

A. No. I'm here to testify that I think that business relationship is -- would fall under --

Q. Which one?

A. Well, the Dreyer Clinic. The service agreement and the ownership arrangements would fall under the “existence of business relationships” in number eight --

Q. Could you read what that says?

A. The patient has the right to ask and to be informed of the existence of business relationships among the clinic, educational institutions, other health care providers or payers that may influence the patient's treatment and care.

Do you want me to read seven and ten also?

Q. Okay. Go ahead, if you think they're relevant to what you're talking about.

A. Ten, the patient has the right to be informed of clinic policies and practices that relate to patient care, treatment and responsibilities.

The patient has the right to be informed of available resources for resolving disputes, grievances and conflicts, such as quality assurance committee, utilization review committee and patient ombudsman or other mechanisms available in the organization. The patient has the right to be informed of the clinic's charges for services and available payment methods. That's number ten.

Number seven, the patient has the right to expect that within its capacity and policies that the clinical will make a reasonable response to the request of a patient for appropriate and medically indicated care and services.

Q. Do you have any information regarding what requests were made by Dorothy Wollin to either Dreyer Health Plans, Dreyer HMO or Dreyer Clinic in this regard? In any regard.

A. Nothing beyond the general -- I would assume anybody that goes to a clinic that she requested appropriate and medically indicated care and services. I was told that that's what she had requested.

Q. Do you have any other information as to what Dorothy Wollin requested?

A. No.

Q. Do you have any other information as to what information was disclosed to Dorothy Wollin?

A. No. There's a third area that we haven't touched on regarding the financial incentives. My understanding is that the clinic was ultimately sold in I believe it was '96 at some point. And while I had earlier said that the owner -- I'm sorry, the HMO. While the physician owners of the clinic stood the benefit financially from all profitability in the HMO, they ultimately also stood the benefit from any proceeds of the sale of the HMO.

Q. Owners of any business would benefit from the proceeds of the sale, true?

A. Right. So it wasn't just from an income point of view, it was also from an asset value point of view that they stood to benefit.

Q. So you're talking about the sale in 1996?

A. Yes, I believe that was the year. So they would have the financial incentive to first of all make as much money as they could through the HMO, and also to present the HMO as an attractive candidate for sale.

Q. Did you calculate any particular numbers in this case?

A. No.

Q. So you did not determine how much money any of the doctors in this case made during the years that they treated Dorothy Wollin?

A. Well, I saw some of the bonuses that were paid; they were quite substantial.

Q. What is your understanding of the where the money came from -- strike that.

What is your understanding of the source of that bonus money?

A. Ultimately the profitability of the HMO.

Q. Did you understand that if money were left over in various funds that you may have read about in the service agreement, that was the profit that the clinic then distributed to physicians?

A. Yes.

Q. Other than the surplus in these funds, any other way in which the physicians benefited financially other than what you've testified about?

A. Well, and the sale of the asset, which is the other thing I testified about.

Q. In 1996?

A. Correct. No, not beyond that.

Q. So when you're talking about the financial rewards that they had, these were the things you were talking about, the distribution of surplus in the various funds that were set up, and then in 1996 the sale of the HMO?

A. Yes.

Q. Do you know how much money these physicians made?

A. I haven't memorized the amount. My recollection was it was somewhere in I believe $10,000 to $20,000 is a figure that appears in my mind for one of the years that I reviewed in terms of bonus distribution.

Q. But you don't know what other money they received in terms of any other compensation?

A. No. It's in the documents. I didn't memorize it.

Q. Do you know whether the physicians or the clinic received any bonuses from any other HMOs with whom they had contracts?

A. I don't.

Q. You don't know?

A. I don't know.

Q. Is it your understanding that the other HMOs that the clinic had contracts with also had bonus programs if there were surplus funds left in the various accounts?

A. I'm not aware of what arrangements existed.

Q. Do you know the basis upon which the physicians were paid, how their salary or bonuses were calculated?

A. No.

MS. RAYMOND: Other than through the HMO?

THE WITNESS: Beyond the bonuses provided in the service agreement? No.

BY MS. UNGER:

Q. Do you know how they were calculated by the HMO in terms of the bonuses?

A. No, not the specifics.

Q. Is it your understanding that the HMO didn't --

MS. RAYMOND: Can you let him finish his answer.

MS. UNGER: He trailed off. I didn't realize he was talking. I apologize.

BY MS. UNGER:

Q. Did finish your answer?

A. I know that the incentives for rewards were in place. I don't know specifically how they were calculated. Ultimately, the overall fund was distributed. How it was distributed per individual, I do not know.

Q. So you didn't look at how the doctors were paid by Dreyer Clinic?

A. There are memoranda that indicate what they were paid. I don't know how those numbers were arrived at.

Q. But in terms of their salary, for example, do you know what basis that was calculated on?

A. No.

Q. Do you know what their salaries were?

A. There is some indication there of what they were, but I don't recall.

Q. The salaries of the physicians?

A. There may be. I don't recall.

Q. Is it your understanding that the physicians were employees of Dreyer Clinic?

A. I don't know.

Q. Did you read any of the depositions of the physicians in this case?

A. No.

Q. Do you have any opinion as to whether these financial incentives that you are talking about influence the physicians in their medical treatment decisions?

MS. RAYMOND: Objection. Beyond the scope.

A. I'm here to testify that the incentives were in place for them to benefit, and that can play a role in influencing decisions.

BY MS. UNGER:

Q. You're just talking about sort of general human nature if there's financial incentives?

A. Right. The economic behavior was incentivized.

Q. And you don't know what the contracts look like that the Dreyer Clinic had with any other HMOs or any other managed care entities?

MS. RAYMOND: Objection. Relevance.

A. Correct, but so far as I know, the physicians did not own the other entities.

BY MS. UNGER:

Q. That's not my question.

A. I understand.

Q. You don't know what those contracts look like, true?

A. Correct.

Q. Have you ever reviewed any other HMO contracts other than in this case?

MS. RAYMOND: Asked and answered.

A. You asked that earlier.

BY MS. UNGER:

Q. And you said no?

A. No, not beyond what I may have reviewed with regard to the Madison general consulting.

Q. You had some paper clips on certain of the documents here. Was there any particular reason why you had those paper clips?

A. I think they're just conserving -- instead of staples.

Q. These weren't a signal to you that there was something of particular importance in these documents?

A. No.

Q. Did you make any other notes on any other documents other than the three little arrows on the patient's bill of rights?

A. No.

Q. Do you have any other opinions in this case that we haven't talked about?

A. Not that I recall, no.

MS. UNGER: No further questions.

MS. RAYMOND: I have no questions.

MR. BARRETT: I have no questions.

MS. RAYMOND: Signature is reserved.

(WITNESS EXCUSED.)

Note: Page 35 missing in original document

I, Deralyn Gordon, a notary public within and for the County of Cook and State of Illinois, do hereby certify that heretofore, to-wit, on the 22nd of June, 1998, personally appeared before me at 200 North LaSalle Street, Suite 300, Chicago, Illinois, STAN V. SMITH, in a cause now pending and undetermined in the Circuit Court of Kane County, Illinois, wherein Wendy Hinterlong, as Independent Administrator of the Estate of Dorothy T. Wollin, deceased is the Plaintiff, and S.P. Baldwin, et al., are the Defendants.

I further certify that the said witness was first duly sworn to testify the truth, the whole truth and nothing but the truth in the cause aforesaid; that the testimony then given by said witness was reported stenographically by me in the presence of the said witness, and afterwards reduced to typewriting by Computer-Aided Transcription, and the foregoing is a true and correct transcript of the testimony so given by said witness as aforesaid.

I further certify that the signature to the foregoing deposition was not waived by counsel for the respective parties.

I further certify that the taking of this deposition was pursuant to Notice, and that there were present at thedeposition the attorneys hereinbefore mentioned.

I further certify that I am not counsel for nor in any way related to the parties to this suit, nor am I in any way interested in the outcome thereof.

IN TESTIMONY WHEREOF: I have hereunto set my hand and affixed my notarial seal this 22nd day of June, 1998.

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