Tort Reform - Medical Malpractice

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1 Tort Reform - Medical Malpractice Country: USA Partner Institute: The Commonwealth Fund, New York Survey no: (3)2004 Author(s): Robin Osborn Health Policy Issues: Political Context, Quality Improvement, Access, HR Training/Capacities Current Process Stages Idea Pilot Policy Paper Legislation Implementation Evaluation Change 1. Abstract The immediate goal of tort reform is to curb the frequency of medical malpractice claims and decrease the magnitude of compensation payments. The broader goals are to stabilize liability insurance markets and provide relief to providers who are troubled by the cost or lack of availability of liability coverage. It is too soon to judge the impact of the most recent wave of tort reforms, but studies from earlier eras provide some information about their likely efficacy. 2. Purpose of health policy or idea A medical malpractice crisis is unfolding in the United States today. The American Medical Association (AMA) has identified 18 states in which physicians and institutional health care providers are experiencing grave difficulties obtaining affordable professional liability insurance. In the last two years, physicians from these states in high-risk specialties such as obstetrics, emergency medicine, general surgery, surgical subspecialties, and radiology have experienced increases in their liability insurance premiums of 10 to 50 percent. In 2003, for example, obstetricians in Florida paid between $125,000 and $250,000 for insurance, depending on the carrier they used; surgeons in Texas paid up to $110,000. According to the AMA, another 26 states are on "orange alert," with indicators suggesting a serious and worsening situation. Physicians in West Virginia, New Jersey, Florida, Pennsylvania, Mississippi, Illinois, Texas, and Missouri have held or threatened work stoppages to draw attention to their plight, and several hospitals in the hardest-hit states have temporarily closed or threatened to close emergency room, obstetric, or other services. Most providers and insurance companies, along with the Bush Administration and many in Congress, advocate damages caps and other traditional tort reforms. These moves are driven, in part, by the perception that a significant increase in the frequency of high-end awards. Between 1991 and 2001, the number of payments of $1 million or more reported to the National Practitioner Data Bank (a federal repository of information on closed claims) more than doubled. The leading liability reform bill at the federal level has as its centerpiece a $250,000 cap on noneconomic ("pain and suffering") damages. Similar measures are being considered, or have been enacted, at the state level. These reforms are designed to curb payouts in medical malpractice claims and increase the predictability of payouts. If successful, it is anticipated that tort reforms will alleviate the costs of liability insurance premiums for physicians. However, since many reforms also constrain litigants' ability to recover compensation in the event of an injury, the reforms also affect patients/plaintiffs

2 Traditional tort reforms divide roughly into three families. Reforms in the first family are characterized by measures that limit access to the courts. For example, laws shortening statutes of limitations or statutes of repose contract the time within which plaintiffs are permitted to lodge their claims. Screening panels and expert witness requirements may also be used to limit access by forcing the litigants to have the merits of their case scrutinized before they reach court. A second family of reforms targets liability rules. For example, eliminating joint-and-several liability means that a plaintiff may recover from multiple defendants only in proportion to their respective contributions to causing the injury. Some legislatures have also introduced rules changing standards for informed consent, expert witnesses, and the evidence required to prove negligence in certain circumstances. The third family of reforms directly addresses the size of awards. Legislators have been particularly enthusiastic about this type of reform in the current crisis-a reaction that is no doubt due to the view (for which there is growing evidence) that large increases in damages awards, particularly the incidence of multi-million dollar awards, has fuelled the current crisis (R. A. Bovbjerg & Bartow, 2003). Caps on damages are by far the most prominent member of this family. A few states have applied caps to the total award, but most focus on noneconomic and/or punitive damages. Caps permit insurers to better predict losses and stabilize premiums by setting limits and limiting exposure from case to case. Because personal injury lawyers are generally paid on a contingent fee basis, earning nothing if they lose and a share of the award if they win (typically, around 35%), caps also stifle volume by ensuring that fewer cases hold the promise of a favorable return. An more direct alternative, in place in about a third of the states, is to regulate attorney fees directly. Several other measures in this third family of reforms have formed part of recent tort reform packages. "Collateral source offset" rules reduce awards by denying plaintiffs compensation for losses that are recouped from other sources, such as health insurance. "Periodic payment" requirements mean that future losses are not available in a lump sum but must be collected in installments over many years. Main objectives The immediate goal of tort reform is to curb the frequency of medical malpractice claims and, among claims that are successful in obtaining payments, decrease the magnitude of those payments. The broader goals are to stabilize liability insurance markets and provide relief to providers who are troubled by the cost or lack of availability of liability coverage. Type of incentives Tort reforms are designed to change the incentives of plaintiffs' attorneys who bring the litigation, ensuring (in a system based on contingency fees) that fewer cases hold the promise of a favorable return on the attorney's investment. Tort reforms are also aimed at comforting commercial insurers offering liability insurers; it is hoped that the greater stability such reforms promise will encourage insurers to continue offering insurance, and that they will do so at reasonable rates. Groups affected Patients/plaintiffs, providers, (physicians and hospitals), liability insurers, trial attorneys 3. Characteristics of this policy Degree of Innovation traditional innovative Degree of Controversy consensual highly controversial Structural or Systemic Impact marginal fundamental Public Visibility very low very high - 2 -

3 Transferability strongly system-dependent system-neutral At best, tort reforms will help control the current crisis, and forestall the (almost inevitable) next one. However, remedying the fundamental failings of the malpractice system requires more sweeping reform. 4. Political and economic background Two critical policy issues distinguish the current malpractice crisis from crises experienced in previous eras. First, the health care industry today has much less capacity to absorb sudden increases in insurance premiums. In the 1980s, hospitals and physicians could generally pass through a significant portion of such costs to payers. The spread of managed care, the advent of strong price controls in Medicare, and the widespread adoption of fee schedules by private insurers have lowered net incomes, rendering physicians less able to cope with hikes in their practice costs than in earlier tort crises. Second, the present crisis occurs in the shadow of the new patient safety movement. The main difference in the policy response to the current crisis differs, as opposed to previous ones, relates to the involvement of the federal government in tort reform efforts. Historically, tort reform has been an issue left in the hands of the states, consistent with the decentralized nature of state courts which are responsible for adjudicating malpractice claims. Today, the federal government is probably more involved than ever before. Federal government departments have issued a number of reports clarifying concerns about the growing body of litigation, and a number of tort reform bills have been introduced in Congress. None have passed both houses, but the President has indicated his interest in signing a tort reform bill when and if one passes the Congress. 5. Purpose and process analysis Idea Pilot Policy Paper Legislation Implementation Evaluation Change Origins of health policy idea As noted above, the immediate goal of tort reform is to curb the frequency of medical malpractice claims and, among claims that are successful in obtaining payments, decrease the magnitude of those payments. The broader goals are to stabilize liability insurance markets and provide relief to providers who are troubled by the cost or lack of availability of liability coverage. Providers and liability insurers are the driving forces behind much of the tort reform activity. Their principal opponents in trying to convince policymakers of the value of tort reforms are trial attorneys (and the professional organizations that represent them). Some legislators have an independent interest in enacting tort reforms: they believe the current liability environment is "out of control" and threatens access to care (through physicians leaving practice or refusing certain types of patients). There have been two previous waves of tort reforms, in response to crises in the mid-1970s and mid-1980s. Tort reforms are almost exclusively a product of state legislatures, although there has been some activity at the federal level (but no actual legislation to date). Stakeholder positions - 3 -

4 Providers (particularly organized medicine) and liability insurers are the strongest supporters The trial bar (most notably, plaintiffs' attorneys through the American Trial Lawyers Association) are the strongest opponents; they are sometimes joined by consumer advocacy and patients' rights organizations The US General Accounting Office and the Office of the Assistant Secretary for Planning and Evaluation have both released policy papers on the topic of state tort reforms over the last few years (see reading list, above). The two major political parties in the United States tend to hold opposing positions on the appropriateness of tort reforms, and have clashed openly about the wisdom of caps on damages. Organized medicine and the insurance industry welcome the Bush Administration's focus on damages caps. The trial bar is a powerful constituency for the Democratic party, and these groups tend to join forces in resisting this reform, as well as any other attempts at changes to the civil justice system that make it more difficult for plaintiffs to bring claims, win cases, or obtain "full" compensation. Influences in policy making and legislation Tort reform consists of the sort of the formal legislative measures described under question 3 above. Definitionally, they take the form of legislation. The key stakeholders are the providers and insurers (who strongly support the reforms) and trial attorneys and consumer advocacy organizations (who strongly oppose the reforms. In general, patients appear to be against the reforms, although there opposition cannot be characterized as strong. This may be partly due to lack of organization or voice; but at least part of the explanation is that this issue is not at the forefront of consumer issues in American health policy. Plaintiffs care about restrictions on damages and access to the courts following medical injury, but most patients do not become plaintiffs. Moreover, trial lawyers are often not held in high esteem so it is not a natural coalition. Legislative outcome Adoption and implementation The key agencies with respect to implementation are states courts. The courts control the implementation of many of the reforms (e.g. caps on damages, collateral source offsets, shortening of statutes of limitations, etc.). Though only a fraction of malpractice lawsuits proceed to jury trial (approximately 5-10%, nationwide), most claims are filed as lawsuits with the court, meaning that the formal legal processes run by the courts have authority over them. Monitoring and evaluation There is no formal process for evaluating or reviewing the impact or efficacy of tort reforms. The critical indicators for physicians are (1) the impact of on rates of increase of liability premiums charged by insurers; (2) the availability of liability insurance; (3) rates of claiming; (4) the magnitude of payouts. (1) and (2) are readily apparent as physicians pay and renew policies annually. (3) and (4) are more difficult to detect at the population level because there is always a fairly wide distribution associated with these phenomena. Previous research has sought to measure these impacts, Regression analyses controlling for the presence of state characteristics (see readings noted in under question 3.1 above). Similar empirical evaluations are likely to follow the current crisis, although we should not expect to see findings from such analyses for several years

5 6. Expected outcome It appears likely, based on previous research, that specific tort reform measures-particularly caps on noneconomic damages and collateral source offset rules-will decrease payouts and possibly also frequency of claims in the medium term (2-5 years). Research has suggested that their impact on liability insurance premiums is mixed; some relief in the medium term is also a distinct possibility, although many other factors influence the calculation of premiums. The undesirable effects depend on the specific type of reform. In general, limitations are placed either on damages paid to plaintiffs' damages, or on plaintiffs' ability to use the legal system to seek compensation for medical injuries. An undesirable effect of caps, which critics have drawn attention to, is that they are regressive: patients who suffer the severest injuries are much more likely to have their compensation reduced by a cap than patients who suffer minor injuries. Because the cap typically applies to noneconomic damages only, there is also a concern that litigants for whom noneconomic damages tend to account for a relatively larger portion of the award-namely, women and the elderly-are disproportionately disadvantaged. Effects on costs: potentially lower costs for the health care system, especially if tort reforms have an appreciable impact on the practice of "defensive medicine" Effects on access: in theory, tort reforms improve access. By reducing threats of liability, it is argued, physicians are less likely to leave practice, relocate, or avoid risk procedures or patients. The evidence that this occurs, however, is not strong, partly because the relationship between litigation and access is not well understood. There is little if any evidence of significant threats to access (e.g. obstetrical care, emergency treatments) from previous malpractice crises, although this threat always looms large in the debate and commands the attention of policymakers. Effects on quality. There is an argument, made by proponents of tort reforms, that reducing litigation problems for physicians' may improve their satisfaction, which in turn may improve the quality of care they deliver. On the other hand, the argument made by opponents of tort reforms is that clamping down on litigation reduces incentives for providers to take care, which adversely impacts quality. There is little solid evidence in either direction. The best view is probably that tort reforms have little or no impact on quality-they neither improve it nor adversely effect it, and they are not designed for either purpose. Academic commentators have argued for a number of more radical reforms using they argument that they promote quality, or at least are more compatible with the independent efforts of health care providers to improve quality. These broader reforms include: (1) use of alternative mechanisms to resolve disputes; (2) dispensing with the negligence as the basis for compensation ("no-fault"); and (3) locating responsibility for all accidents within an organization at the institutional level ("enterprise liability"). Several prominent organizations, including the Institute of Medicine, have endorsed experimentation with such reforms. But despite their theoretical appeal from a patient safety perspective, the political will to test such models does not appear to exist currently. Quality of Health Care Services marginal fundamental Level of Equity system less equitable system more equitable Cost Efficiency very low very high Some conventional tort reforms appear to be effective in reducing litigation costs and stabilizing insurance markets. However, they are not designed to exert any significant positive influences on quality of care or patient safety, nor will they

6 7. References Sources of Information Bovbjerg RR. Legislation on medical malpractice: further developments and a preliminary report card. UC Davis Law Rev 1989;22: Bovbjerg RR, Bartow A. Understanding Pennsylvania's Medical Malpractice Crisis. medliabilitypa.org/research/report0603/understandingreport.pdf (28 July 2003). Danzon PM. The frequency and severity of medical malpractice claims: new evidence. Law Contemp Probs 1986;49: Kessler D, McClellan M. Do Doctors Practice Defensive Medicine? Quarterly Journal of Economics 1996;111: Kinney, ED, Malpractice reform in the 1990s: past disappointments, future success? J Health Polit Pol'y Law 1995;20: Mello MM, Studdert DM, Brennan TA. The new medical malpractice crisis. New England Journal of Medicine 2003;348: Office of the Assistant Secretary for Planning and Evaluation, Department of Health and Human Services. Addressing the New Health Care Crisis: Reforming the Medical Litigation System to Improve the Quality of Health Care. March 3, Sage WM. Understanding the first malpractice crisis of the 21st century, in 2003 Health Law Handbook (Alice G. Gosfield, ed.). St. Paul, Minnesota: West Group: 2003 (in press). Sloan, FA. State responses to the malpractice insurance "crisis" of the 1970s: an empirical assessment. J Health Polit Pol'y Law 1985;9: Sloan FA, Mergenhagen PM, Bovbjerg RR. Effects of tort reforms on the value of closed medical malpractice claims: a microanalysis. J Health Polit Pol'y Law 1989;14: Studdert DM, Brennan TA, Thomas EJ. Beyond dead reckoning: Measures of medical injury burden, malpractice litigation, and alternative compensation models from Utah and Colorado. Indiana Law Rev 2000;33: Studdert DM, Mello MM, Brennan TA. Medical malpractice. New England Journal of Medicine, 2004;350: Thorpe KE. The medical malpractice 'crisis': Recent trends and the impact of state reforms," Health Affairs, January 21, 2004 ( United States General Accounting Office, Medical malpractice insurance: Multiple factors have contributed to increased premium rates. GAO Washington DC: GAO, Zuckerman S, Bovbjerg RR, Sloan F. Effects of tort reforms and other factors on medical malpractice insurance premiums. Inquiry 1990;27: Author/s and/or contributors to this survey Robin Osborn - 6 -

7 Suggested citation for this online article Robin Osborn. "Tort Reform - Medical Malpractice". Health Policy Monitor, 24 June Available at -

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