Republicans have cited medical malpractice (tort) reform as an area for significant savings and quality improvement in our health care system. Although the Affordable Care Act provides funding for state demonstration projects aimed at innovation and developing alternatives to the current medical liability system, little else in the law addresses tort reform (ACA: Section 10607). Republicans are likely to call for more significant reforms to the current system in the new Congress. Working with the GOP to solve the country’s ongoing health care woes could be viewed as a bi-partisan attempt to help restore the American people’s faith in Washington politics.
The goals of medical malpractice reform are to improve patient safety, quality of care, and contain this country’s sky-rocketing health care costs, while legally protecting the patient against medical negligence. Negligence may be defined as conduct “which falls below the standard established by law for the protection of others against unreasonable risk of harm” (Cohen 2006: 2). Since the Commerce Clause of the Constitution allows Congress to regulate medical malpractice (Cohen 2006: 2), this memorandum seeks to address national tort reform in the context of working with Congress to pass legislation addressing these aforementioned goals. A summary of the current advantages and disadvantages of the system is provided, major options considered, and recommendations offered in light of recent research and the current political climate.
Medical Malpractice in the United States
Exactly how much medical malpractice claims and torts contribute to rising health care costs is controversial. With expenditures in 2008 totaling around $2.6 trillion, many experts, including the nonpartisan Congressional Budget Office (CBO), find little evidence supporting the notion that tort reform would have a “measurable impact on health care spending” in relation to the overall costs of health care in the United States (Webel 2009: 2; CBO 2008: 154). A CBO analysis of individual state savings due to medical malpractice reforms did not find significant spending reductions, seeing maximal savings of only 4-6% (Webel 2009: 2); others considered even these estimates generous (Thomas 2010: 1578). Yet for decades tort reform has continually remained a hot button political issue. Why?
The answer lies in the cyclic nature of insurance, i.e. the waxing and waning of “hard” and “soft” markets, and the effect of premiums on providers. When investment returns are good and payouts on claims are low, insurance companies are able to offer lower premiums to their clients. However, when investment returns are low and/or when payouts become burdensome, higher premiums are the only means an insurer has to recoup losses. Withdrawal from coverage can occur and companies may go out of business if increased rates do not generate adequate revenue. In health care, premiums may vary depending on specialty or geographic region, but insurers are also rarely immune to the cycle. The most recent “hard” market began in the late 1990s. In 2002, rates increased for providers around 22.5%. By 2008 rates began to fall again, decreasing by 4.3%. (Webel 2009: 3-10).
If investment returns determine an insurance company’s revenue, then the tort system determines their payouts; this is the driver for an insurer’s financial losses and risk adjustment. Viable threats and successful lawsuits can result in compensatory damages awarded to the plaintiff, which can include economic and non-economic compensation. The former provides for plaintiff damages due to fiscal losses such as uncollected wages, while the latter may include recompense for emotional suffering and hardship. The defendant also may be subject to punitive damages, specifically aimed at punishing the physician for negligent behavior. With rising costs and the possibility of lifetime economic compensation for egregious errors, medical malpractice rates have increased dramatically; the added unpredictability of the non-economic and punitive damages adds further instability to the medical insurance system. (Webel 2009: 5-6).
Clamor for tort reform is loudest during these “hard” markets. With reports of physicians retiring or moving to areas with lower premiums, patients fear the inability to access physicians and proper care (Webel 2009: 1). High profile tort cases have fueled this fire. Yet even during years of relatively lower malpractice insurance premiums, the specter of “defensive medicine” and overuse of diagnostic tests loom in the literature and lay press. Some evidence suggests that tort reform may not significantly affect medical decision making (Sloan 2009: 490; Carrier 2010, 1585), yet there is general agreement that there are some physicians who do practice “defensive medicine,” and some who do order unnecessary tests in fear of lawsuits. Malpractice insurance also allows for an important transfer of risk for providers. Some argue that even if a 6% savings in health care costs is considered meager, it is still a viable means of cost containment. This can be deemed another means of “bending the cost curve” in health care, which is a major goal of the Affordable Care Act and this Administration. Since tort reform is an arena for achieving possible cost-savings, potential areas of tort reform should be closely examined.
Tort Reform
Caps on Damages
Many proponents of tort reform suggest that one way to reduce the number of frivolous lawsuits, and thus lower premiums, would be to “cap” the amount of noneconomic and punitive damages for which providers may be responsible. Without some limit to the financial awards given to plaintiffs for noneconomic remuneration, a significant amount of unpredictability remains inherent in the current system. It is relatively simple to calculate opportunity costs through wages lost, but assigning a dollar amount to pain, suffering, and punishment is significantly more subjective. Others argue that noneconomic awards are often exaggerated in order to cover attorney fees, and these sums are blatantly arbitrary. Some research supports this argument, finding that “laws limiting malpractice payments lower state health expenditures by between 3% and 4%” in 28 states (Hellinger 2006: 1375). Opponents of capping damages often argue that this ceiling would be unfair to those who are recipients of the most severe negligence, and that punitive damages are necessary to punish providers for the most egregious offenses. Their research demonstrates that these reforms lead to almost no savings (Morrisey 2008: 2138-9), and they argue that, even if mild savings are indeed evident, these reforms do little for the bottom line of most hospitals (Ellington 2010: 132-3). Other potential reforms concerning noneconomic damages involve structured settlements. Instead of paying a lump sum, defendants could offer plaintiffs their remuneration over a period of time, thus spreading the cost over a number of years. (Cohen 2006: 1-5, 8-10).
Provider Liability
Some states follow a common law rule that “if more than one defendant is found liable for a plaintiff’s injuries, then each defendant may be held 100 percent liable” (Cohen 2006: 5). This principle, called “joint and several liability,” is intended to ensure that a plaintiff is fully compensated for the transgression, leaving the defendants to work out who is proportionally responsible. The idea is that a plaintiff should receive complete remuneration in a timely manner rather than wait for the defendants to decide culpability. The plaintiff cannot recover more than his or her share, but can recoup 100% of the damages upfront, suing any or all of the defendants as necessary. Joint and several liability is also closely related to the “collateral source rule.” This evidence rule keeps any information out of court that relates to whether a plaintiff can or has received compensation for injuries from someone other than the defendant. This permits a plaintiff to recover full damages from a provider even if the plaintiff is owed compensation from other sources. For example, if a plaintiff has received compensation for medical expenses after an accident from his or her insurance company, a judge or jury is not allowed to take this into consideration when calculating damages. After the trial, the plaintiff may have to return money received from other sources if the damages the defendant has to pay the plaintiff duplicate the plaintiff’s “collateral sources.” Eliminating the collateral source rule would reduce the malpractice award from a defendant if other providers or sources (health insurance companies, hospitals, etc.) are liable as well, and eliminate additional costs and time spent on medical malpractice claims. Abolishing these sometimes inequitable tort rules are seen as potential reforms. (Cohen 2006: 5-6).
Limiting Attorney’s Fees
Attorneys in medical malpractice cases typically receive a percentage of the plaintiff’s total award (or may receive nothing if the suit fails). This fee can be as large as 40 percent of the remunerated damages. Tort reform proponents argue that these fees are exorbitant and increase the cost of malpractice claims. There is some evidence to suggest that larger awards for noneconomic damages directly correlate to these increased fees. This is an attempt to cover attorney expenses for the plaintiff. Advocates also argue that these fees promote the manufacture of frivolous lawsuits in the hopes of reaching a settlement. Creating a sliding scale for attorneys’ fees or capping the maximum percentage that lawyers may charge are two ways of decreasing the expenses incurred with medical malpractice claims and insurance. Opponents of limiting fees quickly note that hourly compensation would make hiring an attorney prohibitive for many Americans. By not charging an hourly rate, plaintiffs who are not well to-do could more easily afford to file claims relatively risk free. (Cohen 2006: 7-8).
Recommendations
This list of potential reforms is by no means exhaustive. Some have suggested that malpractice claims should be decided in specialized medical courts, where medically trained judges decide claims and expedite malpractice cases (Common Good: Health Care). Other countries have found different means of reducing costs. New Zealand has established a “no-fault” liability system where plaintiffs do not sue the party at fault, but instead seek remuneration from a government-run entity (the “Accident Compensation Corporation”) that expedites the claims process in an effort to reduce the cost of insurance and diminish defensive medicine practices, while still ensuring patient safety (Bismark 2006: 889).
So long as there are different ideologies in the United States, tort reform will remain a contentious issue. Although the CBO sees little economic merit in policy changes regarding medical malpractice reform, the literature remains mixed. Not only has cost-savings, state expenditures, and the effects on defensive medicine been substantially analyzed, but so have the effects of tort reform on physician supply. Between 1985 and 2001, “the physician supply grew 2.4% more in direct-reform states than in non-reform states… Researchers [also] found a similar impact for certain physician specialties associated with high premiums for malpractice insurance” (Fernadez and Webel 2006: 7). With access to health care being a core principle of the Affordable Care Act, and so vital to its success, it is difficult not to at least consider the possibilities of medical malpractice reform.
So what is the best course of action for this Administration? Pilot programs and funding for state demonstration projects are a start, but tort reform may be the best potential area to compromise with Republican leadership on health care, pushing Congress toward bipartisan solutions. As long as patient safety (i.e. the safety of the American people), and the people’s right to seek compensation for negligence and egregious medical errors, is protected, reforming the medical malpractice system on a national level could win important political points as 2012 approaches. Working with House and Senate Republicans would demonstrate the President’s commitment to bringing change to Washington, as well as confirm Mr. Obama’s obligation to the American people, ready and willing to hear their voices.
However, it is also important to remember that the American Association of Justice (AAJ) is a powerful lobby in Washington and a significant contributor to the Democratic Party and its candidates (OpenSecrets.org: AAJ). Overtly attacking trial lawyers would not be in the best interest of this Administration, especially in light of the recent Supreme Court ruling concerning campaign finance and advertising. It is also important to remember that an approach deemed too aggressive may actually be detrimental to the health and safety of the American people. This, however, is the tradeoff: bipartisan change in Washington versus the influence of politically important special interests.
This author suggests that the President pursue “token” or “symbolic” medical malpractice reform. It is best to not to attack attorneys’ interests by pushing Congress to limit fees directly or impose tight caps on noneconomic damages. Instead, capping the amount of punitive damages might be a worthy alternative. This would not limit the amount of the award that the plaintiff would receive, but it would protect the provider from the possibly of exorbitant economic punishment, subsequently lowering overall costs to the health care system. Benign revisions to provider liability laws in terms of medical malpractice should also be considered, as well as increased funding for demonstrations and pilot projects surrounding medical malpractice research. Will these reforms significantly reduce costs? The numbers say, “Probably not.” However, with the adequate public relations support, this type of reform and open commitment to fiscal responsibility could be an important political move when considering reelection in 2012.
(sources available upon request)
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