a few sweeping solutions have been proposed. An emerge as the solution to the current malpractice problem. Basic Plan

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1 Commentary Refer to: Cooper JK, Egeberg RO, Stephens SK: Where is the malpractice crisis taking us? (Commentary). West J Med 127: , Sep 1977 Where Is the Malpractice Crisis Taking Us? JAMES K. COOPER, MD; ROGER 0. EGEBERG, MD, and SHARMAN K. STEPHENS, MPH, Washington, DC There have been several approaches taken to solve the malpractice insurance problem in this country. However, since the cost of malpractice insurance continues to climb, the changes so far have not solved the problem, and more changes seem inevitable. A major change could be the development of a patient insurance plan that would provide compensation for certain injuries related to medical care. The insurance coverage would be centered on hospital care. If certain requirements are met, the plan may not be more expensive than the current tort liability system, and would offer several advantages. In addition to the patient injury insurance, there could be federal assumption of liability for national immunization programs. MALPRACTICE INSURANCE continues to present a serious problem in health care in this country. The problem is one of increasing cost, possible inequity and, in some locations at times, decreased availability of insurance. Related to the insurance problem are the issues of quality of care and the role of the tort liability system. The increasing cost of insurance, however, is probably the element that will force change. Cost is determined by the frequency of claims and the dollar amount of the awards and settlements. Both of these factors are increasing at a rate of approximately 10 percent per year.' Changes in tort laws probably will not affect these increases significantly.*2 Therefore, if the cost of malpractice insurance is not unbearable now, in time it will be. Major changes would seem to be inevitable. In the national forum of debate surrounding these issues, many partial and From the Office of the Assistant Secretary for Health, Department of Health, Education, and Welfare, Washingtcn, DC. The opinions expressed herein are those of the authors. Dr. Cooper is now with the Department of Community Medicine, University of Kentucky, Lexington. *A possible exception is repeal of the collateral source rule. which may save up to 20 percent of premium costs. That would be neutralized in one year, however, with increase in number of claims and size of awards. Reprint requests to: Roger 0. Egeberg, MD, Department of HEW, 200 Independence Ave., SW-Room 717H, Washington DC a few sweeping solutions have been proposed. An amalgamation of several ideas will probably emerge as the solution to the current malpractice problem. Basic Plan To some observers it appears that a new plan could partially replace the current system. The fundamental element of the plan will probably be the assumption by each hospital of liability for all negligent injuries that occur therein. The plan would be similar in many ways to Sweden's patient injury insurance program. In Sweden, concern for uncompensated patient injuries and a series of insurance reforms led to the introduction -in 1975 of a universal no-fault insurance program for hospital patients.3 Patients are compensated for actual net losses due to injuries or suffering, with the exception of injuries that would occur regardless of treatment, or those that are part of the expected risk of treatment. A similar approach could be tried in the United States. If so, it might be fashioned in the following way. A claim could be initiated by a patient or on the patient's behalf by the family, or the physician or hospital employees 262 SEPTEMBER 1977 * 127 * 3

2 Hospital Injury Reduction Programs Payment QA feedback #1 Incidents, Hospital Accidents, - Adverse Outcomes Figure 1.-Diagram of process for handling claims and quality assurance (QA) under patient injury insurance scheme. QA feedback #2 (Figure 1). All claims would go to a review board closely affiliated with the hospital (for example, the hospital's Professional Standards Review Organization Board). The board would review injuries for two purposes. First, to consider how the quality of the care related to the injury could be improved in the future. Such a quality assurance aspect would operate whether or not negligence or malpractice occurred; it could be considered as a self-adjusting, self-improving hospital quality-ofcare program. The review board's second function would be to determine whether the injury was compensable. All injuries would be compensable except those occurring as a result of disease or selfinfliction, or as part of the expected risk of treatment. Notice of a compensable event (if that were the determination) would be sent to two separate locations: an insurance office and a state agency (for determination of possible negligence). The insurance office would pay for actual damage immediately. There would be no defense costs, payments being essentially automatic, and the awards would be made according to a schedule of payments. Such a schedule would include awards for pain and suffering. The state agency would separately and independently investigate compensable events to determine if negligence had occurred. It would have the authority to institute sanctions against hospitals and physicians. These sanctions could range from mild reprimands to partial restriction of activity or to revocation of license. For example, Medical Liability Mutual Insurance Company of New York, a doctor-owned company, already has a claims committee which reviews loss experience. The committee can exercise economic sanctions against aberrant physician policy holders. Supporting Plans Two other plans could support the basic plan. The first one would be the direct federal assumption of liability for certain national immunization programs. A recently passed federal law now provides that the federal government will be the exclusive defendant for liability related to inoculations against A-New Jersey-76 influenza (swine flu).4 While this new law represents a major involvement in health care liability for the federal government, it probably does not represent a clear precedent. Under this law, claims are handled in the federal court system. In the future, other similar programs will probably substitute a nofault compensation plan. Persons who feel they have suffered damage as the result of inoculation would file a claim directly with a federal agency. Malpractice or product liability need not be proven. The only requirement would be that the damage be the direct result of the inoculation. Awards would be given according to a schedule. Coverage under this plan could be extended to any nationally supported immunization program. The plan would be similar to the hospital plan in that both are no-fault and provide compensation according to a schedule. The other supporting plan would cover that liability remaining after the hospital and immunization program plans have been carried out. THE WESTERN JOURNAL OF MEDICINE 263

3 The uncovered liability beyond these programs would be for nonhospital and nonimmunization program care; that is, regular office-based care. Such care is beyond the reach of hospital based quality control mechanisms, and liability would be covered by separate private insurance. Claims would be handled through the tort system. In other words, the system in use today would remain intact for this limited area. Physicians would maintain their own individual liability insurance for activities outside the hospital. However, the premium for such coverage would presumably be inexpensive, since the majority of injuries occur within a hospital. Advantages If the hospital compensation plan were implemented, it would represent the imposition of a major new system to replace the existing traditional system for compensation of injuries related to hospital care. Such a hospital plan would offer several potential advantages: Individual Rights and Equity The individual patient would not give up the right to representation by attorney. Any decision in the process might be appealed in a manner similar to Workers' Compensation appeal cases. On the other hand, the patient need not have an attorney, and many small claims presently not accepted by attorneys could be processed. This would result in more small awards being made under this system than under the current system. In addition, equity of payments for equivalent injuries could be guaranteed; that is, equal injuries would receive equal compensation. The mechanism would also return a much greater percentage of the system's financing costs to injured patients' benefits. Prompt Payment The processing of awards would be prompt, thus improving patient satisfaction and satisfying a desire of society. Preservation of Insurance Concept The most general concept of insurance is that it is a mechanism to compensate for damages, without regard to fault. Liability insurance, however, deviates from this concept in that payments are made only if fault (liability) is found. The proposed system would consist of general insurance taken out in the patient's behalf by the hospital. If unnatural or unexpected damage is suffered, the patient would receive compensation. In addition, the system improves the financing aspect of insurance by broadening the risk base. The costs would be spread from the narrow numerical base of practitioners to the much broader base of hospital bed days. Cost Control The system would not necessarily be more expensive than the current tort liability system. Cost control would come about in four ways: * Collateral Sources. Awards under this system would be for actual damages, after other sources of compensation have been considered. Therefore, any compensation from health insurance or unemployment insurance would be subtracted from the total damages allowed. * Annual Payments. All awards in excess of $100,000 must be made on an annual basis instead of as a lump sum. Such payments may well be for life, which would protect injured patients. It would also allow the insurer to purchase an annuity policy for the victim, usually at a cost less than the lump sum award. * Schedule of Payments. Awards, as in Worker's Compensation, would be determined according to a schedule. This would provide rational limits on awards, including those for pain and suffering. * No Defense Costs. In a typical case under the current system, the injured patient brings suit against the hospital, anesthesiologist, surgeon, and possibly others as well. Each must develop his or her own defense. Under the new system there would be little or no defense costs in most cases. Quality Assurance Quality of care should be enhanced under the system by two mechanisms. The first is the hospital review board feedback. The review would consider all aspects of hospital operations that could contribute to imperfect results, without regard to negligence. The recommendations of the review board would be implemented by the hospital administration and staff as an "injury reduction program." Such programs might include special training of nurses, improved patient identification mechanisms, and alterations and improvement in hospital equipment. The second quality assurance mechanism would be the responsibility of the state disciplining agency. This agency, usually the licensing 264 SEPTEMBER 1977 * 127 * 3

4 board, would apply sanctions according to the need. The sanctions could be temporary or permanent. The goal of the agency would be to prevent injuries from occurring in the future. Further, the assumption of the liability by the hospital retains the costs within the system which is responsible for the expense, rather than divesting the financing directly to such external mechanisms as taxes. This provides a direct financial incentive to the hospital to improve care and prevent injuries. Individual Physician Liability Physicians would be kept at risk to some extent, although not to the extent they are at present. All physicians, through hospital staff fees, would be required to share in the cost of the hospital insurance premium. Because of this, some physicians now in a low premium class may pay more, while those in a high premium class may pay less than under the current system. A physician's share of the hospital premium could be based on hospital usage, such as the number of patients admitted each year. This financial interest in the hospital premium would encourage all physicians to participate in the hospital review board functions, and would provide peer pressure to prevent further injuries. Health Care Research The records of individual review boards and state agencies could be made available to research groups on an anonymous and confidential basis. Such groups could study health care and indicate areas in greatest need of improvement. For example, physician specialty societies might wish to examine injuries related to their specialty, and encourage research in the indicated areas. Doctor-Patient Relationship The hospital delivers care as a "team." Errors in care would be a team responsibility. Individual physicians would no longer fear their patients, because action on the part of the patient would be against the hospital, not the individual physician. Comments The hospital plan and the prevention plan would remove compensation for many injuries from the traditional tort liability system. The tort system in this country has developed through trial and error over several hundred years. In many ways it serves its purpose well, and serves justice. However, when the tort system contributes to, or at least does not prevent, costs in a given area from becoming unbearable, then it should be abandoned for that area. There is a precedent in Worker's Compensation laws and no-fault automobile liability insurance. In the medical malpractice area there are other valid reasons to abandon the tort system, at least in part. One reason is the inefficiency of the tort system. Approximately 70 percent of the costs of liability insurance are consumed in administrative and legal expenses. Only 30 percent reaches the injured patient. When viewed as a mechanism to compensate for unexpected injury, the system is inefficient. Further, many patients with relatively minor damages receive no compensation at all, since the preparation and pursuit of such cases is often deemed not worthwhile by attorneys. Therefore, for reasons of cost control, efficiency and equity, a shift to the new plan described here could be justified. It is often said that one purpose of the tort system is to provide a deterrent to negligence. Fear of a malpractice suit probably does contribute to added concern on the part of a physician caring for a patient. It probably also contributes to the unnecessary costs for defensive medicine. Nevertheless, quality of care should remain a paramount concern. The hospital plan above would provide two mechanisms for improving care. The first would be within the hospital and would deal with all aspects of care, whether or not negligence is involved. The second would involve state licensing agencies. It would add vitality to the core function of licensing boards, which, as originally intended when most boards were created at the end of the 18th century, was to protect the public from poor quality medical care. This solution would relieve the physician from individual financial risk for care given in a hospital. There could be, however, a direct financial incentive to provide high quality care, if desired. This incentive could be established by requiring the physician to pay a deductible amount (for example, the first $500) for every award given to a patient under his care. However, if the award were based on a no-fault concept, there would be an inherent unfairness; that is, physicians working in high risk specialties, specialties where patients are more likely to suffer unexpected damages, would be more likely to pay deductible THE WESTERN JOURNAL OF MEDICINE 265

5 charges, even for results which are outside their control. Therefore a physician deductible requirement would probably only be equitable in cases where negligence could be proven, and the attempt to prove negligence would remove most of the advantages of the no-fault approach. Rather than a physician deductible procedure, the physician's share of the hospital premium and the two quality review boards described should provide adequate incentive to assure quality care. The concept of partial no-fault insurance for medical care has been widely discussed.5 Havighurst has suggested a mechanism by which certain events, if they occur, could be differentiated from the expected results of a disease or treatment. Such events would be designated as "compensable" without the need to prove negligence. The Swedish patient insurance system has shown the practical feasibility of such a system. It must be emphasized that this approach is not a general no-fault insurance plan; all adverse or unfortunate outcomes will not be compensated. Instead, compensation would occur only for those events that "should not have happened." Injuries that are compensated for probably would be similar to those that now result in an award under malpractice insurance with the current system (that is, injuries that presumably could have been prevented) except that many more smaller claims probably would be paid. Because liability associated with medical care in hospital would be covered by the hospital plan, it conceivably could be advantageous to individual physicians to keep patients in hospitals longer, or to admit them more frequently, thereby lowering their outpatient liability exposure. However, programs of review of hospital utilization, such as the Professional Standards Review Organization, would be maintained, and would minimize such a consequence. Legislation to implement this proposal should include, measures to protect both the hospital board and state disciplinary agency members from personal liability that might accrue in carrying out duties related to this program. The protection should be absolute; that is, the members should not be subject to suit for slander or other reasons for any action or discussion relating to an accused physician or hospital. Government indemnification for preventive medicine programs is not without precedent. 266 SEPTEMBER 1977 * 127 * 3 COMMENTARY Governmental intervention in the. marketplace is traditionally justified when it is for the common good., The classic example in the health field is government support of vaccination programs; public vaccination is deemed too important to leave to private marketplace forces. The justification for government intervention is easily extended to cover action necessary to assure the successful completion of such programs. Government indemnification of vaccination and other preventive medicine programs is seen by many as necessary to assure the success of such programs. Government indemnification to assure the success of a program has several precedents. A law passed in 1958 allows the Department of Defense to enter into agreements of indemnification with contractors.7 The intent of the law was to protect contractors engaged in extremely hazardous activities, in order to assure their involvement in defense work. For similar reasons, the Price- Anderson Amendment to the Atomic Energy Act allows the Atomic Energy Commission to indemnify contractors up to a certain maximum amount.8 Also, in 1962 Congress authorized the Veterans Administration to indemnify contractors engaged in research into prostheses and related devices.9 These three laws are precedents for federal indemnification for contractor liability associated with federal programs. While this report is speculative, it is nevertheless based on input from many sources. Congress will be debating these issues again, and at that time there will be an opportunity to support other alternatives. Unless another plan is presented that has more equity and cost-control potential, we feel the ideas summarized here will prevail in the long run. REFERENCES 1. The Problems of Insuring Medical Malpractice. A Report prepared at the direction of the All Industry Medical Malpractice Insurance Committee by a subcommittee of Aetna Life & Casualty, Chubb & Son Inc., Employers Insurance of Wausau and St. Paul Fire & Marine Insurance Company, with the assistance of the American Insurance Association, American Mutual Insurance Alliance and Insurance Services Office, Nov American Bar Association Fund for Public Education: Final Report Concerning Legal Topics Relating to Medical Malpractice. Submitted to DHEW under contract , Jan Cooper JK: Sweden's no-fault patient injury insurance. N Engl J Med 294: , Jan 15, Public Law , The National Swine Flu Immunization Program of th Congress, Aug 12, Havighurst C: Medical adversity insurance-has its time come? Duke Law J: , Jan Blumstein J, Zubhoff M: Perspectives cn government policy in the health sectcr. Milbank Mem Fund Q 51: , Summer Public Law , National Defense Contracts. 85th Congress, Aug 28, Public Law , Nuclear Liability Insurance. 85th Congress, Sep 2, Public Law , Veterans Administration Research Contractors. 88th Congress, Aug 14, 1964