All Things in Moderation

One of the problems in discussing tort reform is that there seems to be a lack of agreement on what we are trying to accomplish. Evaluating the success, or lack thereof, of tort reform varies depending on whether you think the goal is to lower malpractice premiums for physicians (not very good at it), stop frivolous lawsuits (OK at it), lower the cost of health care (not very good at it), prevent outrageous verdicts (good at it but other reform could do this too), line the pockets of insurance companies (pretty good at it), promote justice (bad at it) or all of the above. The evaluation process is further complicated by the many variables that cause health care costs and insurance rates to increase and the near impossibility of isolating the role tort reform and law suits play in such trends. Overall, I think tort reform is red herring…well, unless you’re a medical practice attorney (plaintiff or defendant) then it’s a big deal.

For clarification, I am simply going to discuss tort reform as it applies to medical malpractice claims. There are two reasons for that, one is because I can speak knowledgeably about the topic and the second is that it is the sort of tort reform that is discussed when addressing health care reform. Maybe we can goad Quarterback into posting on class action reform at some point in the future (I think that would be worthwhile). I am also going to focus mostly on Michigan because I have personal experience with tort reform in Michigan and because they actually have adopted pretty comprehensive tort reform measures that have been in place since 1986.

Frivolous Lawsuits

Most attorneys can tell a story or two about dealing with a frivolous case and preventing or deterring them is something that should be pursued. Even if the case is quickly dismissed it will cost a party a couple grand in attorney fees (wait, why am I complaining about this?). In Michigan, one of the ways frivolous medical malpractice suits are deterred is through the requirement that plaintiffs file an Affidavit of Merit (“AOM”) signed by a qualified physician with their complaint. The AOM must contain specific things, but basically it’s a physician saying the claim is not frivolous. I’m not sure this is quite the deterrent tort reform proponents think it is. I knew of at least two law firms that had physicians who actually had offices at law firms. That isn’t to say it doesn’t work at all. Statistics show the number of medical malpractice claims filed have declined over the last 10-20 years. I just think the drop in malpractice suits is due to damage caps, which I’ll get into later, rather than fewer frivolous claims.

Another measure aimed at deterring frivolous claims is a loser pays system. I’m dubious of such a system since I think it promotes settlement more than anything and therefore does not particularly promote justice, a criticism that can be aimed at most tort reform measures. Michigan has a tame version of the loser pays system enforced through a requirement that all cases go to “Case Evaluation”, a form of mediation. Case Evaluation involves each party writing a summary of their case and making a presentation to a 3 member panel of attorneys. The panel values the case and each party can accept or reject the panel’s recommendation. Basically, if you reject the recommendation and it ends up a better deal than an eventual jury verdict, you are on the hook for the other side’s legal fees (possibly in addition to whatever the verdict is). Again, I think this mostly promotes settlement which isn’t inherently bad, but isn’t inherently good either.

Damage Caps

While ostensibly aimed at preventing runaway jury verdicts like the infamous $2.7 million verdict (later reduced to $480,000) in the McDonalds coffee case, damage caps are probably best at reducing the number of lawsuits in general. The reason for this is simple; lawyers, unlike more altruistic professional like doctors (I kid), like to make money. In Michigan, punitive damages are not allowed (goodbye $2.7 million) and non-economic (read pain and suffering) damages are limited at two different levels. The first level is currently $411,300 and the second is $734,500. Basically the first level applies unless you have a brain or spinal injury or lose a limb. To show how this deters filing a case, take a 70 year-old retiree who was relatively healthy, goes to the hospital and dies during surgery. Since she wasn’t working, her damages are basically limited to the lower cap amount plus medical bills. So the most an attorney could get is one-third of $411,300 minus expenses. However, most cases aren’t open and shut so the settlement is likely to be much lower. Add the expenses of an expert witness, depositions etc and that cases take 2 years or so to get to trial and it’s easy to see why an attorney would turn down a perfectly legitimate case (this is where a loser pays system may actually increase litigation expenses since an attorney may take on that case if the other side is scared of having to pay attorney fees). Perversely, the 70 year-old’s case is worth a lot more if she ends up alive and brain damaged, paralyzed or missing a limb. It’s pretty easy to see that while this saves money it doesn’t promote justice which is why some states have found caps to be unconstitutional (see Georgia and Illinois).

Health Care Costs

Most recently, tort reform has been talked about in the context of reducing health care costs. The CBO said the money saved would be a drop in the bucket and I tend to think that is true, particularly with respect to decreasing malpractice premiums and the amount paid out in settlements and verdicts. However, that doesn’t really address the cost of defensive medicine which is nearly impossible to measure. To be blunt, I think defensive medicine is largely nonsense. First, the cost of defensive medicine is almost always derived from polls or surveys of physicians who would most benefit from tort reform so color me skeptical. Second, when a doctor submits a bill for a service to Medicare, Medicaid or a private payer they essentially swear the services were medically necessary. So if a test was performed simply to avoid a lawsuit and it was not medically indicated they are committing fraud. Lastly, I think the motivation of being paid for the test is stronger motivation than the less likely scenario of being sued as a result of not performing a particular test.

Are You Done Yet?

This is already too long so a few more thoughts. First, after Texas passed tort reform, doctors rushed to practice there (wait, I thought they were altruistic) which led to more money being spent on health care, not less. Second, there are Constitutional concerns with Congress telling juries all over the country how much cases are worth. Since, tort reform is generally supported by Republicans and opposed by trial lawyer loving Democrats you get a lovely situation where small government conservatives support this big government intrusion and big government liberals (like me) get to point that fact out (yes, I realize this makes me a hypocrite, too). Lastly, there are other measure out there like joint and several liability and the collateral source rule among others, but they involve more legalese and would make this post even longer. I am happy to discuss those in another post or in the comments.

Filed under: health insurance, healthcare, tort reform |