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Who benefits from tort reform?


Malpractice litigation’s most profound effect on the healthcare system doesn’t arise from malpractice insurance claims, case settlements, or court awards for damages, but from the defensive medicine it encourages.

Medical liability tort reform seems like the American medical community’s own recurrent syndrome. Every so often, for reasons that aren’t always clear, tort reform bubbles up as a crisis.

Typically, the trial lawyers say that in fighting tort reform, all they want to do is protect patients against negligent physicians.

The physicians line up on the other side and respond that in pushing for tort reform, they’re the ones who are trying to protect patients from having to pay for the spiraling costs of malpractice insurance, or even from a lack of access to healthcare.

Maybe some laws get passed, the shouting dies down, and the issue disappears as quickly as it arose-until the next time.

A cyclic disorder

Every decade or so since the 1970s tort reform has resurfaced as a major issue, says Keith Hebeisen, a partner at Clifford Law Offices in Chicago, and chair of the American Bar Association’s standing committee on medical professional liability. These crises, he says, are driven by lobbyists for the insurance industry, “using the doctors almost as a front group.”

Over the past 3 decades, every 6 to 10 years would see a huge increase in malpractice insurance premiums, sometimes up to 100%, says Edmund Funai, MD, professor of obstetrics/gynecology at Ohio State University (OSU) in Columbus, Ohio, and chief operating officer of the OSU Health System. “There are lots of theories about why malpractice insurance rates are as high as they are,” says Christopher Bernard, partner at Koskoff, Koskoff & Bieder in Bridgeport, Connecticut.

Insurance cycles of hard and soft investment markets drive, in part, the periodic crises over tort reform, he says, but he also notes that medical malpractice insurers have the highest profit margins among all insurers.

And through these recurrences the tort reform debate hasn’t changed notably in recent years, contends attorney Alice G. Gosfield of Alice G. Gosfield and Associates in Philadelphia, Pennsylvania, a Medical Economics editorial consultant,

Still, there might be reason to hope that this decades-long issue is evolving toward more productive approaches. If there are no breakthrough therapies, in other words, maybe we can hope for better palliative treatments. For example, some new research sheds additional light on the complexities of medical malpractice litigation and its costs.

Along the way, we’ll look at two major disconnects: between tort reform and healthcare reform, and between tort reform and how physicians perceive the risk of litigation.



A blunt instrument

One reason the tort reform debate sometimes seems stuck in neutral is that so often it has focused only on the divisive issue of caps on payments for non-economic damages (also known as “pain and suffering”). California’s Medical Injury Compensation Reform Act (MICRA) of 1975, for example, allows unlimited recovery for economic damages, but sets a ceiling of $250,000 on non-economic damages. The California Medical Association (CMA) believes the law has helped keep malpractice premiums in check. Recently, though, the CMA says that trial lawyers have mounted a new effort to reform the law, so the CMA is rallying its members and raising funds to fight back.

Funai, who has practiced obstetrics/gynecology in several states (though not in California), observes that MICRA seems to have held malpractice insurance rates down, but also points out that, “Premiums vary tremendously by state, even by county, sometimes.” Ohio, where he lives now, uses caps and requires certificates of merit, and malpractice premiums are pretty manageable. He says that his dropped about 70% when he moved there from Connecticut.

Illinois’ experience with compensation caps has been somewhat more complex, says Hebeisen. A bill mandating caps was passed in 2005, but it was declared unconstitutional by the Illinois Supreme Court in 2010, the third time in about 25 years that the court had shot down caps. He adds, however, that a provision in the 2005 law required greater transparency by malpractice insurers, and the Illinois Department of Insurance later held hearings into the relation between compensation caps and medical malpractice premiums.

The result, Hebeisen says, is that “everybody in Springfield now knows” that there’s little to no connection between malpractice litigation and insurance premiums.  He adds that only about 1,500 malpractice cases are filed in Illinois annually, and that number is going down.

Despite successes in California and elsewhere (Texas enacted a similar law in 2003), caps are but one tool, and perhaps a rather blunt one. A June 2013 issue brief from the Center for American Progress, co-authored by bioethicist Zeke Emanuel, MD, PhD, criticizes caps on damages as doing little to reduce national healthcare spending, while posing the risk that patients injured by negligence might not be fully compensated. The document cites a 2009 Congressional Budget Office estimate that caps on damages would reduce national healthcare spending by only about 0.5 percent.

A February 7, 2013, opinion column in The Wall Street Journal by health policy researchers noted that caps on noneconomic damages are ineffective in significantly reducing self-reported defensive medicine, according to a 2010 Health Affairs study. The opinion column, titled “Defensive Medicine May Be Costlier Than It Seems,” was written by Seth A. Seabury, PhD of the University of Southern California; Amitabh Chandra, PhD, of the John F. Kennedy School of Government at Harvard University; and Anupam B. Jena, MD, PhD, of the Harvard Medical School.

This first disconnect helps raise an often-overlooked question: What are tort reform measures, such as caps, for? Who are they really supposed to benefit? If caps and other measures are meant simply to hold down malpractice insurance premiums, they seem to work, at least to some degree. But if tort reform is intended to help reduce the nation’s perilously large healthcare bill, it does not seem to help. Why?

Response worse than the problem

The answer seems to be that malpractice litigation’s most profound effect on the healthcare system doesn’t arise from malpractice insurance claims, case settlements, or court awards for damages, but from the defensive medicine it encourages. The heaviest cost, therefore, is generated not by attorneys, but by physicians.

So if defensive medicine is costly and tort reform has helped reduce the costs of litigation at least somewhat in some states, why does defensive medicine persist?

Part of the answer is that defensive medicine can be a rational choice, says Funai. If a given diagnostic test has marginal value, but the test generates some income and also provides some liability protection, he asks, why would a physician not order it?

But more strategically, defensive medicine seems to bear little relation to the actual risk of liability litigation. A 2008 survey that asked physicians about their beliefs and attitudes toward malpractice risk found that 68% of physicians in the five states with the highest malpractice risk reported “ordering some tests or consultations simply to avoid the appearance of malpractice,” Seabury, Chandra and Jena wrote in The Wall Street Journal. A hefty number, certainly, yet 64% of physicians in the five states with the lowest malpractice risk reported doing the same thing, the three reported.

“[S]everal economic studies (including work by us),” they wrote, “have found that states that have enacted malpractice reforms experienced a mere 2% to 5% reduction in healthcare spending compared to states that have not.

“The relatively minor reductions in healthcare spending that have been observed … might result from the fact that, even in reform states, doctors continue to practice defensive medicine. The changes in the malpractice system may have done little to change physicians’ perceptions of the risk of being sued…., they conclude”

Perceptions are also crucial in another area: catastrophic claims. Contrary to common belief, malpractice insurance claims of more than $1 million are relatively rare and contribute little to the nation’s spiraling healthcare costs, according to a study published online on March 29 by the Journal for Healthcare Quality.

The study, “Catastrophic Medical Malpractice Payouts in the United States,” by Marty Makary, MD, MPH, an associate professor of surgery and health policy at the Johns Hopkins University School of Medicine, Baltimore, Maryland, and co-authors, reviewed nationwide medical malpractice claims using the National Practitioner Data Bank.

The researchers examined more than 77,600 claims paid between 2004 and 2010 and found that catastrophic claims (those more than $1 million) comprised only 7.9% of the total. Over the 7-year period, such claims totaled $9.8 billion, out of a total of $27 billion in claims paid.

“The notion that frivolous claims are routinely resulting in $100 million payouts is not true,” Makary says in a statement. “The real problem is that far too many tests and procedures are being performed in the name of defensive medicine, as physicians fear they could be sued if they don’t order them. That costs upwards of $60 billion a year. It is not the payouts that are bankrupting the system-it’s the fear of them.”

The data suggest, he continues, that the focus of legal reform efforts should be on doctor protections intended to reduce defensive medicine, rather than on enacting malpractice caps.

Makary advocates for more research to determine what interventions might prevent the types of errors that result in catastrophic payouts, because that would both improve patient safety and reduce costs. But even greater cost reductions, he contends, will come from reducing the overuse of diagnostic tests and procedures.



More than just money

If some progress has been made in tort reform by limiting non-economic damages to patients, and perceptions of risk can greatly differ from reality, perhaps further progress can come from looking at the non-economic costs to physicians of liability litigation.

“Physicians can insure against the payment of damages, but they cannot insure against the emotional, reputational and work-related costs of litigation,” wrote Seabury, Chandra and Jena in The Wall Street Journal.

In healthcare reform, “you want to take away incentives for physicians to do a lot of stuff,” by reforming the fee-for-service model, Seabury tells Medical Economics. But, he adds, if fear of litigation keeps pulling doctors back toward wasteful defensive medicine, little is gained.

One of the factors fueling that fear, Seabury says, is the length of time that a typical physician has a malpractice case hanging over his or her head. Typically, that’s about 51 months, or nearly 11% of an assumed 40-year career (or roughly as long as medical school), according to findings by Seabury, Chandra, Jena and Darius Lakdawalla, PhD, published in the January 2013 issue of Health Affairs.

The study was based on a national database of nearly 41,000 physicians covered by a large physician-owned liability insurer and examined malpractice claims closed between 1995 and 2005. The authors found that time to resolution of a malpractice claim increased significantly with the severity of the patient injury and that the time to resolution increased modestly but significantly over the period studied. Pediatrics and obstetrics were the specialties with the longest average time to resolution.

“The substantial portion of the average physician’s career spent with an outstanding malpractice claim may be as important as the annual probability of facing a malpractice claim in shaping physicians’ perceptions of malpractice risk,” the researchers wrote, adding, “claims that did not result in payment accounted for more than 70% of the time physicians spent with open claims….”

“The fact that physicians spend such a substantial portion of their careers defending-usually successfully-malpractice claims probably contributes to their negative perceptions of the system….”

Seeing tort reform in a different way

In the current environment, where the focus is simultaneously on healthcare quality, safety, and value for money, “tort reform needs to be looked at in a different way, says Gosfield.”

Fortunately, many tort reform tools have been tried, or at least proposed, giving the nation a potential arsenal for paring down the waste that defensive medicine inflicts on the healthcare system. A June 2013 Center for American Progress (CAP) issue brief advocates two current-generation malpractice reform measures. First, the document recommends a “safe harbor” that would protect physicians if they could, broadly speaking, document having adhered to evidence-based clinical guidelines, preferably national guidelines.

Using a planning grant from the federal Agency for Healthcare Research and Quality, Oregon officials estimated last year that a safe harbor provision, and physician adherence to practice guidelines, would cut patient injuries about 5%. In addition, more than 70% of the Oregon providers surveyed said that a safe harbor would probably decrease the practice of defensive medicine.

Second, the CAP brief advocates standards for developing such practice guidelines. It points to the Choosing Wisely initiative (www.choosingwisely.org), under which, by the end of this year, about 45 physician specialty societies will release lists of common tests and procedures that might be overused or unnecessary.

Not that practice guidelines are always an effective tool. A January 2013 report from The Leapfrog Group, a hospital-quality watchdog organization, found that in many states the percentage of early elective deliveries (those performed prior to the 39th completed week of gestation) remains excessive, despite practice guidelines from several national organizations, including the American College of Obstetricians and Gynecologists, that discourage such deliveries. Evidence-based standards are being talked about a lot, says Bernard, but they haven’t been enacted yet.

Another proposed type of safe harbor would provide immunity for a physician or other healthcare provider who apologized following a medical error. For example, In  June the Pennsylvania state senate unanimously approved a bill that would make any benevolent gesture such as an apology or explanation by a healthcare provider inadmissible as evidence of liability.

Several states have adopted such measures, says Hebeisen, but he warns that some hospitals have been pushing physicians to make apologies without having legal protections or immunities in place.

Related to these are disclosure-and-offer” programs. Under such programs, Seabury, Chandra and Jena explain in their editorial, “providers voluntarily disclose adverse events to affected patients and, when appropriate, make offers of restitution prior to the filing of any lawsuit. The goal of these offers, like payments from no-fault compensation funds, is to reduce the frequency of claims and avoid costly litigation.”

Certifications of good faith (also called certificates of merit) are a fairly uncontroversial reform measure (Illinois has required them since 1986). In states that have adopted them, to proceed with a liability suit the plaintiff has to obtain a statement from a healthcare professional that has reviewed the relevant medical records and affirms that there is a meritorious basis for the suit.

This had already been a usual practice of good lawyers, Hebeisen says, so the mandate to get a certificate of merit was not a particular change for them, but he says this is nonetheless a measure that can benefit everyone.

The idea of specialized health courts has existed for several years, but it got a big boost from a February 2010 blog post in The Atlantic by attorney and Common Good chair Philip K. Howard, says Gosfield.

Hebeisen says the concept is gaining traction, while Funai sees health courts as “promising but under-explored.” Seabury says that both health courts and apology laws are worth more research and pilot projects.

Beyond these measures, Bernard notes that some states, including Florida and Virginia, have set up special funds for cases involving injuries during childbirth (which tend to generate outsized claims). Also being explored, he says, are special protections for emergency physicians, so their actions are judged by standards of care for emergency medicine, not those for other specialties.

If all of these potential approaches to tort reform sound scattershot, that isn’t necessarily bad. Remember that the goal is not necessarily a cure, just better therapies.


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