I have noticed several problems with the current damage system:
1) If you are knocked out you simply get back up, without any kind of injury other than the damage you've already taken.
2) The only real way to heal HHP damage is with a gauze.
3) Gauze heals at a ludicrous rate.
Here are my proposed solutions:
A) Whenever you're knocked out you get a one of the following debuffs:
Fractured Arm: Everything takes 25% longer and you cannot carry anything or equip anything to your left arm.
Broken Leg: You cannot move at any pace higher than crawling, if you equip a crutch you can move at normal speed as well but not running or sprinting.
Infected Gash: You take 50% more damage from attacks.
Concusion: All your skills are reduced by 5.
These debuffs dissapear after 56 hours. (one ingame week)
B) Every 8 hours you spend sleeping restores one HHP, as well as decreasing the amout of time till knockout debuffs dssapear by 2 hours for every hour spent sleeping. In addition you should be able to use a needle and silk threads to stitch up a wound, this does not heal instantly, instead it converts HHP damage to SHP damage at a 1:2 rate, consuming a silk thread for every 5 HHP restored.
C) Instead of healing damage constantly gauze doubles the amount of HHP you regain whie sleeping. While wearing gauze debuffs from being knocked out disapear in half the amount of time.