Health Policy Tracking Service A Service of Thomson West Issue Brief October 1, 2007

Health Policy Tracking Service A Service of Thomson West Issue Brief October 1, 2007 Medical Malpractice and Tort Reform Authored by Jennifer L. Berger, J.D. 1 According to the American Medical Association (AMA), 17 states are now in a medical liability crisis. 2 States in crisis continue to lose access to care, including a high adverse impact on the number of available obstetricians, rural family physicians, neurosurgeons and other high-risk specialists. The AMA supports tort reform legislative measures that include a $250,000 cap on non-economic damages and no limit on such economic damages as medical expenses, rehabilitation costs and lost wages. A study by Daniel P. Kessler, Stanford University Professor and research associate for the National Bureau of Economic Research, investigated the determinants of malpractice premiums. 3 Kessler found that increased cost claims are the primary driver of premium rate increases, tort reform decreases claim costs and in turn premiums, and there is no evidence that anticompetitive behavior, weak regulation insurer investment decisions or other features of capital markets are important contributors to rising premiums. The results of tort reform in Nevada seem to agree. Since the passage of the 2004 Keep Our Doctors in Nevada Initiative, the number of doctors in Nevada has increased while insurance premiums have decreased; however, the new law may be impacting a malpractice victim s ability to take a case to court. 4 The 2004 initiative put a $350,000 limit on non-economic damages and limited the amount of the award paid to the victim s attorneys. In response, insurance premium rates stabilized and, in the case of at least two insurers, have begun to decline. Since 2004 only four payments averaging $305,000 have been made to victims. However, some attorneys believe the initiatives may be preventing victims from filing because of the limitation on awards and the number of attorneys who may be unwilling to take these cases when their own financial benefit is limited. A study by Americans for Insurance Reform found that payout rates for medical malpractice actions have remained relatively flat for the last 20 years when adjusted for inflation. 5 Based on information from A.M. Best & Co., an insurance analyst firm, the total amount paid on claims nationally in 2005 was $4.9 billion for a payout per doctor of $5,400, the lowest amount since 1981 when adjusted for inflation. Americans for Insurance Reform believes that this indicates that rising insurance rates are related more to market conditions and poor management on behalf of insurance companies. However, groups like the Illinois State Medical Society, the largest medical malpractice insurer in Illinois, questions the study results and claims this is only propaganda for plaintiffs attorneys since Americans for Insurance Reform is associated with the Center for Justice and Democracy, a consumer group that opposes tort reform. The concern over victim s rights in Nevada represents the crux of the conflict over medical malpractice tort reform. On one side organizations like the Physician Insurers Association of America (PIAA) express concern over meritless claims with

high defense costs that in turn raise the cost of malpractice premiums for health care workers, while groups like Public Citizen find that the medical malpractice system produces rational outcomes. Researchers at the Harvard School of Public Health found that efforts to cap damages and limit attorney s fees had a relatively limited impact on caseloads and costs of medical malpractice. 6 Most of the resources for the 1,452 closed cases in the study went for claims with evidence of medical error or substandard care. Of the paid claims 73 percent involved claims due to medical error while only one-third of all claims were without merit, and claims without merit were only paid out at a rate of one in four. In Pennsylvania rising malpractice costs had little impact on the number of doctors practicing high-risk specialties over a 10-year period of time. 7 Research published in the journal Health Affairs included an analysis of more than 47,000 doctors from 1993 to 2002, including medical residents who participated in MCARE, the state s malpractice insurance program. Among the doctors in the study 16 percent of doctors in high-risk specialties such as urology, neurosurgery and orthopedics stopped practicing between 1999 and 2002 when Pennsylvania was experiencing a malpractice insurance crisis. The number of doctors who stopped practicing in the same high-risk categories from a non-insurance crisis period of 1993 to 1998 averaged at 15 percent. In contrast, researchers conducting a synthesis for the Robert Wood Johnson Foundation determined that economic caps have the greatest impact on medical malpractice cases and reduce awards by as much as 20 to 30 percent. 8 According to a review from Cumberland School of Law at Samford University and the Lister Hill Center for Health Policy at the University of Alabama, caps on medical malpractice lowered insurance premiums for doctors. Economic caps had a modest impact on premiums, reducing the growth of premiums by 6 to 13 percent. Analysis of 10 studies, from 1990 to the present, found that the rates of medical malpractice insurance premiums were lower in states with caps than in states without caps. There was also no evidence that caps affected consumer health insurance costs. The researchers did find some evidence of small-to-modest effects of damages caps on defensive medicine and physicians were more likely to practice in areas with caps. The study was published in the Milbank Quarterly. In addition the 2006 Hospital Professional Liability and Physician Liability Benchmark Analysis conducted by Aon and the American Society for Healthcare Risk Management of the American Hospital Association found that of 47,735 claims against doctors, nurses and other medical professionals overall medical claim frequency did not increase for the second year in a row. 9 The 47,735 claims represented $4.4 billion of incurred losses. However, the average size of malpractice claims continues to grow at a rate of 6 percent and the overall amount paid to claimants increased at 3 percent. Amounts paid to defend against claims grew by 17 percent since hospitals are investing larger amounts in claims management. Furthermore, juries are more willing to give physicians the benefit of the doubt. A University of Missouri-Columbia professor conducted a study entitled Doctors and Juries analyzing 17 years of malpractice cases and found where the evidence conflicted a jury was more willing to side with the physician. 10 Juries also agreed with a paid expert witness 80 to 90 percent of the time. Furthermore, plaintiffs rarely win weak cases; juries have a strong ability to recognize weak cases. The Insurance Information Institute (III) has identified several issues currently having an impact on the status of medical malpractice in 2007 including: 11-2-

The stabilization or in some cases decrease of insurance premiums depending on specialty or geographic location. About 70 percent of the 837 rates quoted showed no rate change or a rate decrease for three specialties in a 2006 Medical Liability Monitor survey. However, rates are still higher than five or six years ago, and doctors who reduced their coverage are not yet raising their coverage according to Medical Economics. In addition the number of filed claims appears to be decreasing. The U.S. Department of Justice s Bureau of Justice Statistics found that most medical malpractice claims between 2000 and 2004 in Florida, Illinois, Maine, Massachusetts, Missouri, Nevada and Texas were closed without payment. Where damages were awarded or cases settled the average amounts increased slightly over the last four years. A March 2006 Towers Perrin study found that over the 29 years since 1975, medical malpractice cost increases are rising at an average of 11.7 percent a year, when compared with 9.0 percent for all other tort costs. As a result, the overall cost of medical malpractice claims experienced a steeper increase than any other type of tort claim. As a result of these market trends, III has made several specific recommendations quoted below to reduce the overall cost of medical malpractice insurance. 1. Emphasize risk management. 2. Take action against the small proportion of doctors with multiple judgments against them and who drive up the cost of insurance for all. 3. Encourage the disclosure of medical errors and open communication between health care providers and their patients when there is an unexpected adverse outcome so that claims can be resolved more quickly. 4. Create special courts of law to handle medical malpractice cases or design a compensation system similar to workers compensation, a nofault system that exists in all states to compensate for on-the-jobinjuries. Faced with conflicting evidence, states in 2007 have attempted to resolve the problem by introducing legislation aimed at reducing claims, reducing awards or eliminating liability all together. This issue brief will focus on Statements of Sympathy, Grants of Immunity, Regulation of Insurance and Caps on Non-Economic Damages. 2007 Legislation Statements of Sympathy -3-

The consideration and enactment of legislation that seeks to allow providers to express sympathy in the course of litigation was a notable feature beginning in the 2004 legislative sessions. By 2006, approximately 18 states have passed some version of a sympathy law. Sometimes called Sorry Works programs, physicians and hospital staff conduct root-cause analyses after every unexpected outcome, apologize to injured parties, provide solutions to address the problem and offer upfront compensation to the patient, family, and their attorneys. A growing body of research suggests that apologizing for adverse medical outcomes may effectively resolve legal disputes and avoid large damage awards, and the increase in enacted legislation suggests that lawmakers are translating this research into practice. The University of Michigan Health Care System recently reported that the number of lawsuits has declined from 260 to 100 since the adoption of an apology program in 2001. 12 In 2007, a number of legislative bodies have continued the trend and introduced sympathy legislation: North Dakota 2007 ND H.B. 1333 (NS) makes expressions of empathy by health care providers inadmissible in civil actions. Nebraska 2007 NB L.B. 373 (NS) makes statements of apology not admissible in court. Grants of Immunity In a 2005 survey called Emergency Physicians' Fear of Malpractice in Evaluating Patients with Possible Acute Cardiac Ischemia, researchers at the University of Iowa found that emergency room physicians most concerned about lawsuits were more likely to admit patients with cardiac symptoms and to order more tests. 13 The researchers surveyed 33 physicians at two university hospitals to gauge their fear of malpractice and determine the impact of that fear on patient care. Emergency physicians with the highest level of fear of malpractice were less likely to discharge low-risk patients. In order to reduce defensive medicine and encourage appropriate health care without fear of liability among physicians, states have introduced legislation providing for reduced liability, malpractice fund assistance or immunity for emergency room physicians or physicians rendering assistance in an emergency: Florida 2007 FL S.B. 1508 (NS) adds additional personnel to provisions allowing for immunity for certain emergency room examinations and treatment of incapacitated persons done without consent if informed consent would have reasonably been given. New Mexico 2007 NM S.B. 23 (NS) provides for limited malpractice insurance for retired, but licensed, health care providers who render medical services without compensation at free or low cost licensed New Mexico facilities. Nevada, 2007 NV A.B. 4 (NS) limits liability for physicians or registered nurses providing instruction or supervision to an emergency medical technician or a registered nurse at the scene of an emergency or while transporting an ill or injured person from the scene of an emergency as long as the instruction or supervision does not amount to gross negligence. -4-

Regulation of Malpractice Insurance The expectation of medical malpractice tort reform was to reduce the number of filed claims and in turn reduce the cost of premiums for physicians and other health care workers. According to the American Association of Justice (AAJ, formerly known as the Association of Trial Lawyers of America), states with non-economic damages caps have premiums 9.8 percent higher than in states without caps and that at least one major insurer has admitted that damage caps will have no impact on premium rates. 14 In Florida, however, premium rates did fall after the state passed medical malpractice reform in 2003; despite a reduction in filed claims, rates are still higher than expected. 15 Rather than abandoning tort reform measures states have introduced legislation to regulate premium rates and require insurers to file rate, plans, systems and rules regarding the malpractice products they offer. Caps on Non-Economic Damages Oregon has the 8 th lowest payout rate for medical malpractice in the county despite having no non-economic damages cap since 1999 when the cap was revoked by the Oregon Supreme Court. 16 This finding was the result of a study published in Health Affairs entitled Impact of State Torts Reforms on Physician Malpractice Payments. 17 Using data from the National Practitioner Data Bank from 1991-2003, the study determined that the states with the lowest payout rates were states requiring expert witnesses. Non-economic damage caps were associated with fewer filings and lower payments, but economic damage caps had little to no impact. Furthermore damages caps were less effective than other types of medical malpractice reforms in lowering the number of cases filed and the total payout on medical malpractice cases. State legislatures would likely disagree since they continue to introduce legislation capping non-economic damages. Below is a list of some of the legislation introduced in 2007 relating to the capping or limiting of non-economic damages: Tennessee 2007 TN H.B. 1993 (NS) Pennsylvania 2007 PA H.B. 1262 (NS) New Jersey 2007 NJ H.B. 4194 (NS) In addition, the issue of non-economic damages continues to be litigated. In Louisiana, the state Supreme Court found the state s $500,000 medical malpractice cap constitutional 18 and sent the case of Monistere v. Engelhardt, 19 challenging the malpractice cap, back to the Louisiana Third Circuit Court of Appeals for further review. The Third Circuit found the cap unconstitutional since the malpractice cap was set in 1975; in today s dollars the cap would have to be $1.7 million to offset inflation. Health Courts A health court is a specialized court or administrative system that would likely involve a tribunal of experts overseen by the state. 20 Plaintiffs would submit cases directly to the local court or board that would evaluate each case and determine if the injury could have been avoided. In clear cases the health care provider would be ordered to pay damages to the claimant. Certain categories of injuries would be -5-

predetermined as clear cases of provider error. In theory, a specialized process would standardize the outcomes of malpractice cases by promoting consistent standards for claims and creating strong precedent that would be applicable across all populations and geographic areas. With consistent claim treatment and claim awards malpractice insurance rates would stabilize. Some organizations disagree with the potential success of health courts. AAJ is concerned that health courts: 21 1. Eliminate juries, a plaintiff s right guaranteed by the U.S. Constitution; 2. Are expensive since they will require start-up money from the state and possibly federal government to set up an entirely new court or arbitration system; 3. May unfairly set compensation for various injuries without taking in account the specific issues of the individual plaintiff for example a lost finger due to medical malpractice is a larger hardship for a violinist than for an office worker. In 2007 the American Medical Association (AMA) adopted new principles for health courts. 22 A health court is a specialized court or administrative system that would likely involve a tribunal of experts overseen by each individual state. 23 AMA health courts would be composed of judges specially trained on medical issues in order to get greater consistency in medical malpractice cases and judgments. As stated in the AMA policy the principles include six key points: 24 Health courts should be structured to create a fair and expeditious system for the resolution of medical liability claims - with a goal of resolving all claims within one year from the filing date. Health court judges should have specialized training in the delivery of medical care that qualifies them for serving on a health court. Negligence should be the minimum threshold for compensation to award damages. Health court judgments should not limit the recovery of economic damages, but non-economic damages should be based on a schedule. Qualified experts should be utilized to assist a health court in reaching a judgment. Health court pilot projects should have a sunset mechanism in place to ensure that participating physicians, hospitals and insurers do not experience a drastic financial impact based on the new judicial format. The AMA principles also include details about court structure, selection of health court judges, health court procedure and reporting of medical errors. In 2007 at least 10 states have introduced health court-related legislation. All of the programs share several features: a lack of juries, avoidability as the standard patients must prove rather than negligence and damage schedules for specific kinds of injuries like the kind used in worker's compensation panels. 25 While no states have successfully passed any measures instituting any version of specialized court or administrative system specifically for medical malpractice, legislation continues to be introduced. In 2007 introduced legislation has included: Oregon 2007 OR S.B. 655 (NS) establishing a medical malpractice court. Massachusetts 2007 MA S.B. 955 (NS) creating the medical injury court department of the Trial Court of the Commonwealth. -6-

Pennsylvania 2007 PA S.B. 678 (NS) establishing and evaluating an administrative medical liability system and promoting patient safety by fostering alternatives to current medical tort litigation. CONCLUSION As study results suggest, there is a great deal of uncertainty regarding medical malpractice costs. One study finds an increase in claims and payouts is impacting premium rates, another study determines that non-economics caps were effective at reducing meritless claims, while still another study claims such caps have little to no impact on claim rates or payouts. Some doctors have even taken the extreme step of requiring patients to sign medical malpractice waivers. At least a dozen gynecologists in New Jersey are requiring patients to sign contracts not to sue for malpractice before the doctors will provide treatment. 26 According to the terms of the agreement, patients forfeit their right to a jury trial and agree to limits on damages, including pain and suffering and punitive damages. Doctors who get patients to sign no-malpractice agreements get reduced malpractice insurance rates. It is unclear if such agreements would hold up in court. However, state lawmakers clearly continue to maintain their belief that the current tort system and rate of increase in medical malpractice insurance premiums will have an adverse effect on the health care system. Medical associations and trial lawyers continue to disagree fervently about the efficacy of instituting caps on non-economic damages. The result of their disagreement is likely to manifest in the passage or failure of 2007 medical malpractice tort reform measures. This Issue Brief contains information on introduced and pending legislation. Subscribers to Legislation To Watch can view the full text of these bills, along with related information and actions. If you do not have access to Legislation To Watch or for information about other HPTS products, please contact 1-800-WESTLAW (1-800-937-8529), for information about subscribing to Westlaw. -7-

APPENDIX: STATE MEDICAL LIABILITY LAWS Westlaw s State Survey on Medical Malpractice Regulations, a compilation of state statutory citations governing this issue, can be found in the 50 State Surveys database (SURVEYS) on Westlaw. If you do not have access to Westlaw or this database, please contact 1-800-248-2449. -8-

ENDNOTES 1 Jennifer L. Berger is a principal attorney editor on the Publisher s staff and a member of the Illinois bar. 2 Medical Liability Crisis Map, American Medical Association, available at http://www.amaassn.org/ama/noindex/category/11871.html. 3 New Study: Tort Reforms Reduce Medical Malpractice Insurance Premiums, Physician Insurers Association of America, available at http://www.piaa.us/press_releases/2006_04_27_kessler_release.htm. 4 Joe Mullin, Nevada s Med-Mal Changes Help Doctors, Hinder Lawsuits, THE ASSOCIATED PRESS, Feb. 8, 2007. 2/8/07 APALERTCA 02:28:21. 5 Adam Jadhav, New Study in Malpractice Debate, ST. LOUIS POST-DISPATCH, March 19, 2007. 2007 WLNR 5928908. 6 David M. Studdert and Michelle M. Mello et al., Claims, Errors and Compensation Payments in Medical Malpractice Litigation, NEW ENGLAND JOURNAL OF MEDICINE, 354(19), May 11, 2006. 7 Martha Raffale, Study: Malpractice Crisis Had Little Effect on PA. Doctor Supply, ASSOCIATED PRESS, April 26, 2007. 4/26/07 APALETPA 04:27:44. 8 Claudia H. Williams and Michelle M. Mello, Medical Malpractice: Impact of the Crisis and Effect of State Tort Reforms, The Synthesis Project, Robert Wood Johnson Foundation, available at http://www.rwjf.org/research/researchdetail.jsp?id=2723&ia=132&gsa=1. 9 Aon Study finds hospital professional and physician liability claims stabilizing, http://www.aon.com/about/news/press_release/pr_00697117_study_liability_claims.jsp. 10 Julie Deardorff, Should You Sue Your Doctor?, CHICAGO TRIBUNE, April 17, 2007, available at http://ww.anabaptistethics.org/article.php?id=6255. 11 Insurance Information Institute, Medical Malpractice, Sept. 2007, available at http://www.iii.org/media/hottopics/insurance/medicalmal/. 12 More Providers Adopt Disclosure and Apology Policy Regarding Medical Errors, KAISER DAILY HEALTH POLICY REPORT, Jan. 14, 2007, available at http://www.kaisernetwork.org/daily_reports/rep_index.cfm?dr_id=42460. 13 New Study Documents Defensive Medicine Practiced Among Emergency Physicians Fearing Lawsuits, American College of Emergency Physicians, July 13, 2005, available at http://www.acep.org/webportal/newsroom/nr/annals/2005/071305.htm. 14 Debunking the Top 5 Myths about Medical Malpractice, American Association for Justice, Jan. 30, 2005, available at http://www.justice.org/pressroom/facts/medmal/top5myths.aspx. 15 Insurers Should Let Doctors in on Big Drop in Malpractice Claims, TAMPA TRIBUNE, Feb. 24, 2007. 2007 WLNR 3698054. 16 Joe Rojas-Burke, No Cap, But No Hike in Payments, THE OREGONIAN, March 8, 2007. 2007 WLNR 4412451. 17 Teresa M. Waters, Peter P. Budetti, Gary Claxton & Janet P. Lundy, Impact of State Tort Reforms on Physician Malpractice Payments, HEALTH AFFAIRS, 2007, available at http://content.healthaffairs.org/cgi/content/abstract/26/2/500?maxtoshow=&hits=10&hits= -9-

10&RESULTFORMAT=&author1=waters&fulltext=malpractice&andorexactfulltext=and&searchi d=1&firstindex=0&resourcetype=hwcit. 18 Ted Griggs, Justices OK Malpractice Cap Court Overturns Ruling That 75 Limit of $500,000 Now Too Low, BATON ROUGE ADVOCATE, Feb. 8, 2007. 2007 WLNR 2479169. 19 Monistere v. Engelhardt, 896 So.2d 1105 (La. App. 2005). 20 For additional information, see Common Good, available at http://cgood.org/healthcare.html. 21 Health Courts: A Radical Proposal for Compensating Innocent Victims, American Association for Justice, available at http://www.atlanet.org/pressroom/facts/health/healthcourts.aspx. 22 AMA Adopts Principles for Health Courts, LIFE SCIENCE WEEKLY, July 10, 2007. 2007 WLNR 12752027. 23 For additional information, see Common Good, available at http://cgood.org/healthcare.html. 24 For additional information, see American Medical Association press release, available at http://www.ama-assn.org/ama/pub/category/17765.html. 25 Dick Dahl, Taking the Pulse of 'Health Courts', MINNESOTA LAWYER, July 23, 2007. 2007 WLNR 14187082. 26 Mary Jo Layton, The Doctor Will See You, If You Won t Sue: No Malpractice Contracts Test Boundaries of Medicine, NEW JERSEY RECORD, April 29, 2007. 2007 WLNR 8147883. -10-