Massachusetts attorney Eric J. Parker has written a great article concerning the role confidentiality agreements play in Massachusetts medical malpractice settlements. Here is the article:

Negotiated settlements of claims arising from medical negligence frequently involve the issue of confidentiality between the parties. In cases where a defendant physician, facility or other health care provider demands a confidentiality provision as part of a settlement agreement, plaintiff’s medical malpractice lawyer must consider several factors prior to agreeing to include confidentiality as a material term of a release and settlement agreement.

The first and most obvious consideration is the client’s intent and objective in bringing the action in the first place. A client that is dealing with their own, or a family member’s loss, as a result of a medical error experiences a wide array of emotions in deciding whether to pursue a claim. A frequently stated motivating factor is the desire to “make sure this doesn’t happen to someone else.” As noble a cause as this may seem, it does not square with the remedies available in most jurisdictions, or the purpose of the civil trial system. The civil litigant is entitled to fair compensation for their injuries, and that remedy is the “justice” available.

Therefore, it is critical that the plaintiff’s medical malpractice lawyer makes it a priority to have a frank and direct discussion with their client about the goals of the suit. The timing of this discussion is important. This isn’t an appropriate topic for a meeting early in the case, when the client’s emotions are raw and they are still trying to make important decisions about their case. As the case develops, and the likelihood of settlement increases, the client must, at that time, fully understand that in the event a monetary settlement is achieved, there will most likely be a demand from the defendant for confidentiality. If the issue is not addressed prior to monetary discussions, and is raised for the first time near or at the end of settlement negotiations, often a client will view this as an unfair and unexpected demand by the defendant, and this may cause them to reject a settlement that is otherwise fair and in their best interest.

Under current Federal law, a client’s concern that they are being paid to keep silent is tempered by the requirement that all settlements or claims paid by physicians be disclosed on that physician’s profile, as maintained by the state’s Board of Registration in Medicine. While the identity of the plaintiff and financial and other terms are not disclosed, the number of claims paid within the prior 10 years is listed for each physician. Ironically, this provision has had a chilling effect on settlements, as doctors often resist agreeing to settlements in light of the reporting requirement. There is talk about eliminating the reporting requirement to promote settlement of strong negligence claims, which could, in turn, increase the importance of the considerations involving confidentiality agreements.

Once the plaintiff agrees upon confidentiality, plaintiff’s medical malpractice lawyer should make every effort to properly define the scope of the provision. A balanced confidentiality agreement offering the most protection to the plaintiff should identify which disclosures are prohibited and which are permitted. Ideally, an agreement favorable to the plaintiff will define prohibited disclosures as those that are (1) intentional, and (2) directed to the media. Exclusions must be made for any disclosures that may be (1) required by law, or (2) necessary for the plaintiff to obtain tax or other financial advice, particularly as such advice relates to a structured settlement. Finally, lawyers for all parties should specifically discuss whether the terms of any confidentiality agreement apply to anonymous reporting of the subject matter to jury verdict reporting services or other legal publications.

As for the financial consequences of a confidentiality provision, two particular issues deserve comment here. First, the plaintiff must be aware of what consequence results from a breach of confidentiality. More often than not, the consequence a plaintiff will face for breach is included as an express provision within the agreement. In the majority of cases, such a breach will result in the plaintiff having to forfeit the entire sum received from the settlement.

Another financial consideration is discussed in a recent case in the United States Tax Court (Amos v. Commissioner of Internal Revenue, T.C. Memo 2003-329, U.S. Tax Ct., 2003). The settlement agreement in Amos included a confidentiality provision. The Internal Revenue Service asserted that a portion of the total settlement granted in exchange for confidentiality was taxable to the plaintiff. The Court agreed with the IRS, and after considering several factors, concluded that $80,000 of the $200,000 settlement could be attributed to the guarantee of confidentiality. The Amos court further suggested that the apportionment between the value of the personal injuries versus the value of the confidentiality agreement could have been expressly stated by the parties in the agreement, eliminating the need for consideration of the issue by the tax court.