Sued? You may never get your day in court

August 4, 2006

Under pressure from insurers to cut costs, malpractice attorneys are pushing doctors into questionable settlements.

You may grumble about your malpractice premiums, but you probably don't question the quality of the protection you're getting for your money. Perhaps you should.

Defense attorneys we consulted told us that some malpractice carriers push them hard to cut legal costs. Should that worry you? You bet. When defense lawyers are squeezed, it's their clients who suffer, ending up with a second-rate defense and pressure to settle a possibly winnable case. Or, sometimes doctors end up in trial when they could-and should-have settled.

The underlying problem is that defense attorneys really have two clients: the doctors they're defending and the insurance companies that pay their bills. In many cases, the interests of the parties coincide. But not always. If the carrier wants to settle and the doctor doesn't, the lawyer ends up caught in the middle. His obligation to defend the doctor may conflict with his loyalty to the insurer, particularly if he depends on it for a substantial part of his income.

To appreciate that pressure requires some understanding of the economics of malpractice defense. Most defense attorneys bill insurers at an hourly rate plus expenses. In complex cases, those fees and expenses can mount quickly. Copies of medical records alone can run thousands of dollars. Reviewing them can take several days' worth of billable hours. Each medical expert-there are often two or three-may charge $2,500 to 5,000 a day plus travel expenses to testify at a deposition or trial. As a result, a typical defense can easily cost $50,000 or more just for the discovery phase and well over $100,000 if the case goes to trial.

Cutting costs with "managed law"

To control legal fees and expenses, insurance companies have increasingly adopted cost-control measures that sound a lot like managed care. For example, many carriers now contract with their defense firms on a flat-rate-per-case basis, with separate approval required for additional fees or expenses, or if the case goes to trial.

"These arrangements are insidious because they create pressure to settle," says John M. Fitzpatrick, a defense attorney in Richmond, VA. "If we settle early, we stand to net more from the flat fee-and the carrier stands to lose much less-than if we fight the case and go to trial. But if I have a defensible case, I don't want to settle. I want to take the case to trial because a defense verdict is the only way the doctor can clear his name. That's why we won't accept a flat-fee arrangement: It creates a clear conflict of interest."

Another way insurance carriers control costs is by cutting or limiting what they pay their lawyers. According to Steven Kern, a defense attorney in Bridgewater, NJ, "Some carriers now pay a fixed rate of only $100 to $125 an hour, which is ridiculous for an experienced attorney. These guys are handling some of the most complex cases around, with multimillion dollar verdicts at stake, and they're being nickel-and-dimed by the carriers."

While some defense firms can afford to refuse those discounted rates, others may have little choice. If they depend on just two or three carriers for the bulk of their legal business, they don't have much leverage when negotiating fees. Given the competition for legal business, there are plenty of other firms willing to accept those rates even if it means that the doctors they represent may not get the best possible defense.

"The only way some firms can make those rates pay is to spend less time on the cases, or assign them to less experienced attorneys," says Kern. "Or they'll use associates or legal assistants to do the initial discovery work, even though that's often critical to the case."