Medical Malpractice 13 25 September 2017 - PowerPoint Presentation

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Medical Malpractice

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25 September 2017

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Learning GoalsLearn the basic concepts of liability and tort law in the U.S. legal system.Know the basic goals of a liability system: deterrence and compensation.Discover the basic concepts of the Learned Hand Rule for liability.Assess the importance of defensive medicine in response to liability rules.Find out how malpractice insurance alters incentives for deterrence.

Learn the extent to which the current system actually deters injuries.Discuss large-scale reform to the medical–legal system and its advantages and disadvantages.9 October 20172

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13.1 Background of the Legal System in the U.S.The first issue of legal importance arises from the U.S. Constitution, which does not withhold for the federal government that part of the law relevant to medical malpractice. Each state specifies its own laws regarding everything about medical malpractice. The states also control the way doctors, nurses, hospitals, and all other providers of care are licensed. Although the laws have evolved in similar ways across most states, important differences remain, and these differences allow some analysis of the effects of these laws on the rates at which malpractice occurs, the costs of defensive medicine, and the premiums paid for medical malpractice insurance, all issues we discuss in detail in this chapter.Figure

13.1 (next slide) shows the important parts of the legal system in every state that affect medical malpractice. This figure looks something like the standard biological classifications, but the “kingdoms” represent “criminal” and “civil” law, not “plant” and “animal.” With very few exceptions, the relevant law for medical malpractice is part of civil law. Within civil law, three major branches pertain to medical malpractice: tort law, contract law, and the laws regulating the insurance industry.

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13.1 Background of the Legal System in the U.S.9 October 20174

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13.1 Background of the Legal System in the U.S.Tort LawTort law provides the basis by which one person may litigate to recover damages for personal injury, one of the many forms of a tort. The plaintiff makes a claim with the court that the defendant has harmed him. The

lawsuit specifies the defendant’s acts and the damage those acts imposed on the plaintiff and asks for relief. In medical malpractice suits, the relief most commonly means the payment of financial damages. Sometimes the relief includes an order from the court to the defendant—for example, that the defendant stop doing the thing that caused the damage (a “cease and desist” order).The key issue in medical malpractice cases is one of negligence. The law says that a plaintiff has been negligently harmed by the defendant if and only if the injury to the plaintiff was preventable and that it was “reasonable” to undertake the activity that would have prevented the injury.

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13.1 Background of the Legal System in the U.S.Tort Law, continued.Some medical malpractice lawsuits stem from whether the doctor (or other provider) appropriately warned the plaintiff about the possible risks of a treatment.These cases have their roots in the law of contracts, and the broad set of activities that these encompass includes issues of “informed consent.” In the most simple terms, a doctor may not undertake a procedure on the patient unless the patient consents, and for

the consent to have legal meaning, the law requires that the patient have reasonably full information about the possible risks involved. Lawsuits brought by patients suing for alleged medical malpractice may or may not end up in a trial, which may or may not include a jury. Either the defendant or the plaintiff may insist on a jury trial, but if both agree to waive that right, the trial can proceed with only a judge hearing the case and rendering the entire verdict. Both sides hire attorneys-at-law (lawyers) to present their cases to the court and to provide legal counsel.Both sides may hire experts to testify about the case, including, in medical malpractice cases, issues of negligence, medical causality, and the extent of damages incurred by the plaintiff. Other “witnesses of fact” may testify about events that transpired, but only experts may render opinions about those events.

This process consumes large amounts of resources, so that even plaintiffs who win their litigation often recover far less than half of the total resources devoted to the case.

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13.1 Background of the Legal System in the U.S.Tort Law, continued.Most lawsuits in this country are settled in advance of a trial, quite often with no payment from the defendant to the plaintiff. Gould (1973) showed that, because of the costs of carrying out a trial, settlement is very likely to occur in tort cases whenever the parties agree on the probability that the plaintiff would win the case.

If they agree that the plaintiff’s case is very strong, the defendant will settle for an amount quite near the amount requested in the lawsuit. Danzon and Lillard’s (1982) study found that settlements average three-quarters of the size of their best prediction of what a trial award would have been had the case proceeded to trial. Also found that settled cases tend to have much smaller awards than those going through trial.The larger stakes in cases with most severe injuries incline both plaintiffs and defendants to show a reluctance to settle. 9 October 20177

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13.1 Background of the Legal System in the U.S.Tort Law, continued.Each state’s tort law defines the general terms by which plaintiffs may file medical malpractice suits against providers of medical care. These laws specify the nature of what constitutes negligent behavior; the statute of limitations (the time that may pass after an injury during which the patient may still bring suit); the nature of allowable evidence; and, in many states now, the size of damages that plaintiffs can recover for some forms of injury. Another relevant body of the law provides regulation of insurance within each state. Providers of care all face financial risk associated with their attempts to heal people’s injuries and illnesses.

The tort laws within which providers must operate create financial risk for them. The risk created by the law leads them to seek insurance against those risks. 9 October 20178

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13.1 Background of the Legal System in the U.S.Tort Law, continued.The risks to providers arise in at least two forms. First, all providers know that they have some chance of engaging in negligent behavior, either through mistaken knowledge, sloppiness, or fatigue.Second, the imperfection of the court system creates additional risks; sometimes the patient may suffer an adverse outcome, but not through negligent behavior of the provider, but will still win their cases.Bovjberg

(1995), using data from one large malpractice insurance carrier, estimates the then-current rate to be 15 malpractice claims per 100 physicians per year, down from a peak of 17 per 100 physicians per year in 1986. Because the U.S. economy has about 360 patients per physician, this implies about 1 in every 2,400 patients in the United States files a malpractice claim each year.Farber and White (1991) used independent reviewers to evaluate a series of claims from a sample of hospitals and concluded that negligence was present in 35 percent of the claims, no negligence was present in 42 percent, and that they could not make a determination from the medical records in the remaining 23 percent.

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13.1 Background of the Legal System in the U.S.Tort Law, continued.In events classified by Farber and White as negligent, two-thirds (66 percent) of plaintiffs received compensation, averaging a bit more than $200,000 per claim. For non-negligent cases, the courts awarded compensation in only 16 percent of the cases, with an average award of just under $42,000.Many states now set limits, for example, on the size of awards for “pain and suffering” associated with an injury. Because of the highly subjective nature of pain and suffering and because of the occasional extremely large awards granted by courts for pain and suffering, these types of awards became an obvious point of contention during the medical malpractice crises of the 1960s, 1970s, and 1980s, and many state legislatures chose to set limits for this area of damages in particular.

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13.1 Background of the Legal System in the U.S.Criminal LawCriminal cases differ from civil cases in two important respects. Guilty defendants can be sentenced to prison in addition to having to pay monetary fines.Only the government can bring criminal charges against an individual.In medical events, the most common source of a criminal charge involves financial matters (fraud), commonly perpetrated against a government provider of insurance, such as Medicare or Medicaid.

For true medical issues, a doctor’s behavior sometimes becomes so bad that the state files a charge of criminal negligence against the doctor. Cases sporadically reach the courts under charges of homicide when doctors terminate life support for individuals or assist patients in committing suicide.

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13.2 The Economic Logic of Negligence LawLaws defining negligence (and responsibility to pay for damage) have two obvious purposes: to compensate victims (“fairness”) and in an efficient way to deter people from harming others.Because of the costs of preventing every possible harm, a zero-damage world is not optimal. Negligence occurs when a provider of care causes harm to a patient that could reasonably have been prevented. The plaintiff must prove not only that he or she was harmed, but also that the actions of some provider of care was responsible for the harm. The

plaintiff must also show that the doctor’s behavior did not meet “reasonable” standards of care.The standard of care, once based on local norms, is usually based on “national” standard, reflecting the widespread dissemination of medical information through journals, continuing medical education seminars, national and regional medical meetings, all providing doctors with “current” information about modern methods of diagnosis and treatment. 9 October 201712

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13.2 The Economic Logic of Negligence LawNegligence law in its most general structure offers a standard that has compelling economic logic. This standard, first set forth by Judge Learned Hand, forms the “classic” basis for defining negligence. According to the Learned Hand Rule, negligence occurs when doctors fail to take some action to prevent harm and when it would on average cost less to prevent that harm than the costs of the harm itself. This definition closely matches the economist’s prescriptions in cost–benefit analysis.More formally, suppose p = probability of some harm’s occurring without any intervention by the doctor, D = 

the amount of damages incurred if the harm takes place, and C = the cost of preventing the harm. Then the Learned Hand Rule says that negligence has occurred if C < p × D.The logic of the rule is also valid when the choice involves “how much” or “how often” to do something. Negligence occurs whenever a doctor doesn’t undertake “enough” activity to prevent harm, with “enough” defined specifically in terms of incremental costs versus incremental benefits.9 October 2017

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13.2 The Economic Logic of Negligence LawThis formulation of the law places the burden of behavior on the person with the greatest knowledge about the appropriate technology—the doctor. In effect, it tells the doctor, “If you behave in a way that would minimize social costs of harm, you will never harm a patient negligently.” Rationally behaving doctors would always advise their patients to do things in a way that corresponds exactly to economists’ prescriptions for efficient use of resources. Likewise

, rational patients would also always accept such advice for obvious reasons.In concept, the Learned Hand Rule deters doctors from doing “useless” procedures and, indeed, from doing “too much” medical intervention. In practice, the rule is virtually never applied this way.9 October 201714

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13.3 Judicial Error, Defensive Medicine, and “Tough Guys”Courts make errors of omission and commission, just as doctors do. Doctors often feel that courts find for plaintiffs just because a bad outcome has occurred rather than only when negligence has occurred.Farber and White (1991) estimate that courts awarded damages to 66 percent of those negligently injured and only 16 percent of those injured without negligence. Combining these data with information on the mix of negligent and non-negligent injuries allows

us to estimate that 77 percent of all malpractice awards are to people for whom negligence actually occurred. Similarly, given the disparity in awards ($205,000 per negligent injury, $42,000 per non-negligent injury), approximately 94 percent of the dollars awarded went to persons negligently injured, and only 6 percent to those injured without negligence.Despite the evidence that decisions and dollars awarded tip heavily toward patients actually injured negligently, many doctors assert that they undertake “defensive medicine” to protect against this risk. That is, they carry out medical procedures for the purpose of preventing lawsuits rather than for purposes they believe will improve the patient’s well-being.“Defensive medicine” is difficult, perhaps impossible, to measure.Danzon (1990) studied how patterns of medical care differ across regions with different rates of malpractice claims filings, finding that rates of use of standard “defensive medicine” activities such as X-rays and laboratory tests were generally unrelated to measures of patients’ propensity to sue.

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13.3 Judicial Error, Defensive Medicine, and “Tough Guys”Kessler and McClellan (1996) used the various state tort reforms as the basis for their analysis. Looked at Medicare patients treated for heart attacks (acute myocardial infarction, or AMI) and chest pain due to poor blood supply to the heart (ischemic heart disease) for the period 1984–1990, when many of the states enacted tort reform. Looked at total hospital expense for the year after the initial event as a measure of treatment intensity and measured mortality and rehospitalization rates as outcome measures. Found that treatment intensity fell after tort reform but no measurable changes in either outcome

studied.Concluded that the pressure of malpractice law caused doctors to expend resources (defensive medicine) that did not improve patient outcomes.In a large review of available evidence, the Office of Technology Assessment (OTA, 1994) of the U.S. Congress sought to determine the extent of defensive medicine through physician surveys, clinical scenario studies, statistical analyses linking procedure choices to malpractice liability risk, and case studies.The OTA concluded “a relatively small proportion of diagnostic procedures—certainly less than 8 percent—is performed with a conscious concern about medical liability risk.”9 October 201716

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13.3 Judicial Error, Defensive Medicine, and “Tough Guys”A Game-Theoretic Issue about LawsuitsDoctors commonly complain that medical malpractice trials represent an expensive form of Russian roulette in which plaintiffs make outrageous claims, seek a settlement for a relatively small percentage of the claim, and occasionally go to trial and win a large verdict by convincing a sympathetic jury to help them, even when no negligence has actually occurred.Individual doctors facing a medical malpractice suit confront the costs of defending the case, not only in financial outlay to lawyers but also in their own time in preparation for the case and in court. Most doctors carry malpractice insurance that covers not only payments to plaintiffs but also the legal costs of a defense, but their own time and effort are not insured, and so there is an incentive to settle.

In game theory, when an individual repeatedly plays the same “game,” it often pays off for the person to establish a reputation as a “tough” player. If plaintiffs’ attorneys know that doctors (and hospitals) have such reputations, the attorneys will have less interest in filing frivolous suits. However, no single doctor has much incentive to spend the time and effort to establish such a reputation because the chances of their being able to take advantage of the investment are small. 9 October 201717

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13.3 Judicial Error, Defensive Medicine, and “Tough Guys”A Game-Theoretic Issue about LawsuitsIn this game, particularly when the courts occasionally err in awarding verdicts to plaintiffs when negligence has not occurred, settlement often seems the wiser choice for each individual doctor.Thus, the effort spent in establishing a “tough” image has many aspects of a public good with regard to the medical community.Every doctor would benefit from a “hard-line

” stance relative to frivolous lawsuits, but no individual doctor has the incentive to help establish such a reputation.One important party does have an incentive to establish such a reputation, however: the insurance company that provides the medical malpractice insurance to doctors. These companies often guide the defense of a medical malpractice claim, and they sometimes have the contractual right to determine when a settlement will take place. May be one of the reasons why there are often only a few insurers in a single region. If any insurer can establish a “tough” reputation in bargaining with plaintiffs’ attorneys, it will have created a competitive advantage that will allow it to dominate a market.

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13.4 Medical Malpractice InsuranceAlmost all doctors and hospitals carry medical malpractice insurance that pays for the costs of defending medical malpractice cases and for any awards against the provider. Commonly doctors carry something in the neighborhood of $1 million and $3 million in “basic” coverage, meaning that the coverage will pay up to $1 million for a single judgment, and $3 million total during the life of the contract. Hospitals also commonly carry liability insurance because they too can be held accountable for harm to patients, even if caused by a doctor’s negligence rather than that of any person employed by the hospital.One survey of physician practice expenses (AMA, 2003) gathered data on medical malpractice insurance costs as part of its assessment of physician practice costs. Overall, the reported premium costs averaged $18,000, ranging from $12,000 in pediatrics to $39,000 in ob-gyn. These

costs represented about 4 percent of practice revenues overall, ranging from 2 percent in pediatrics to about 7 percent in ob-gyn.A more recent survey focusing on the costs of malpractice insurance found the national average cost of primary-care doctors at about $12,500 per year, while ob-gyn doctors paid $45,000 per year (down $10,000 from 2007). While accurate data are rare, industry publications continue to describe typical premium costs for malpractice coverage as remaining flat over recent years, and typical coverage amounts remaining at $1 million/$3 million, with some total coverage limits reaching $5 million. 9 October 201719

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13.5 Evidence on Actual Deterrence Do Injured People Bring Lawsuits?Difficult to answer in practice.Must find a set of people injured by negligent behavior and then determine whether they filed suits, or some comparable method to estimate the number of injured patients and suits filed.Mills et al., 1977 looked at hospital care in 1974. The California Medical Association (CMA) and the California Hospital Association (CHA) hired experts to study medical records in 23 hospitals scattered throughout California, and the medical–legal experts looked for documented

evidence of injury due to negligence. They concluded that approximately 1 in every 125 patients was negligently injured during a hospital stay.From this sample, they estimated how many injuries occurred for the entire state in 1974, and then they compared this estimate with the number of lawsuits actually filed relating to that care. Estimated that fewer than one injured person in ten files a lawsuit. Of those who did, less than one-half actually received compensation. 9 October 201720

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13.5 Evidence on Actual Deterrence Do Injured People Bring Lawsuits?, continued.By 1985 the rate of malpractice suits doubled compared with that in 1978, the period of the CMA study, but even so, this says that at maximum only about one in five injured patients brings suit.A study conducted in 1989 using 1984 hospital data from New York State produced quite similar results (Table 13.1, next slide)Sampled more than 30,000 medical records from 51 hospitals throughout New York State.

Only a small fraction of negligent injuries led to patients filing claims.Estimated that 3.7 percent of hospitalized patients had an adverse event, and of those a little more than a quarter were due to negligence (as defined by their experts’ review of records). Most of the adverse events caused problems lasting less than 6 months, but 13.6 percent led to death and another 2.6 percent to permanent disability. The rate of negligence grew rapidly with age of the patient and with the severity of the adverse event. For example, less than one-quarter of the “low-severity” events were due to negligence, but one-third of those with permanent disability and one-half of those adverse events leading to death were due to negligent treatment. Finally, the researchers found important differences both in the rates of adverse events and negligence across medical specialties. 9 October 2017

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13.5 Evidence on Actual Deterrence Do Injured People Bring Lawsuits?, continued.Why do patients bring so few lawsuits? If an injury has small consequences, any court award will presumably also be small. If the activity of bringing lawsuits to court has any important fixed costs, then small claims will tend to get filtered out.

The propensity to sue seems to increase with the severity of injury, consistent with this “fixed cost” idea. For minor injuries, roughly one of 13 patients brought suit, while for permanent injuries, one of six sued.A common complaint by doctors and providers is that patients bring lawsuits whenever any poor outcome occurs during medical treatment, whether due to negligence or not. The CMA/CHA study refutes this strongly. White (1994), reviewing these and other studies, concludes that overall, 2.6 percent of all persons negligently injured actually file claims, 1.0 percent of persons injured non-negligently file claims, and a very small 0.1 percent of noninjured patients file claims.No conclusive evidence on the central question of the extent of deterrence. Since a relatively small fraction of injured patients brings suit, this logically tells us that any incentives for deterrence have been seriously blunted as a result.

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13.5 Evidence on Actual Deterrence Quality of Care and Negligence Lawsuit RiskStuddert et al. (2011) linked together tort claims brought against 1,465 nursing homes (in the 1998–2006 period) to ten indicators of nursing home equality, looking at the relationship between quality of care and lawsuit activity, a different perspective on deterrenceThe most prevalent claims of negligence group into five areas: falls (27 percent of claims), pressure and bed sores (16 percent), dehydration and malnutrition (8 percent), physical or verbal abuse (5 percent), and medication errors (4 percent). Together

these account for almost 60 percent of all claims. The quality indicators (from the so-called “minimum data set” for reporting nursing home quality) include measures of what percentage of patients have fractures, falls, weight loss, dehydration, pressure ulcers, and use of restraints. Only two of these—weight loss and pressure ulcers—had a strong relationship between each nursing home’s rates of occurrence of these types of events and the frequency of tort claims. The others—fractures, falls, dehydration, and use of restraints—were unrelated. The rate of “all deficiencies” reported was related to the rate of tort claims and the rate of serious deficiencies, but (curiously) with a less strong effect than “overall deficiencies.”9 October 201724

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13.5 Evidence on Actual Deterrence Quality of Care and Negligence Lawsuit Risk, continued.This analysis also provided a novel way to test the effect of the litigation environment on the probability that a nursing home was sued. The study classified states into “high” and “low” litigation risks depending on how often nursing homes (in general) were sued within the state. The results show that the litigation environment had far more effect on the chances of a nursing home being sued than did the quality of care in the nursing home. In low-litigation environments, low-quality nursing homes had a distinctly lower chance of being sued than did high-quality nursing homes in high-litigation-environment states. And conversely, the highest-quality nursing homes in high-litigation environments had a higher chance of being sued than the poorest-quality homes in the low-litigation-environment states. A nursing home’s chance of being sued hinges much more on characteristics of the state’s legal system than the quality of care.

While the highest-quality nursing homes did get sued less often than the lowest-quality homes, the fact that each state’s litigation environment has much more influence on risk of lawsuit tells us that the “policing” function of the tort system seems swamped by the general litigiousness of the state’s legal and economic environment.9 October 201725

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13.5 Evidence on Actual Deterrence Malpractice Insurance and DeterrenceJust as health insurance creates incentives for patients to increase medical care use, malpractice insurance may dull physicians’ incentives to treat patients with proper caution.The importance of this effect hinges on the way insurance companies do business, including how they select their “customers” (i.e., which doctors they will insure), the information that they use about doctors in setting insurance premiums, and the amount of “risk-reduction” activity they undertake.Suppose that only two types of doctors exist in terms of their propensity to injure patients negligently.

Call the probabilities of injury pL and pH (L and H for low and high risk, respectively), and suppose for greatest simplicity that when doctors harm patients, they create the same level of damage (D). Thus, the expected damage they could create would be pLD and pH

D for low- and high-risk doctors, respectively.

Finally, suppose that some effort to prevent harm, costing

C,

is sufficient to make any high-risk doctor a low-risk doctor

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that the Learned Hand Rule would make it negligent not to use this level of

effort

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13.5 Evidence on Actual Deterrence Malpractice Insurance and Deterrence, continued.If insurers could identify high- and low-risk doctors in advance and charge them insurance premiums reflecting their expected damage, then every doctor would decide to undertake the risk-prevention activity, thereby both reducing malpractice insurance premiums and minimizing the amount of harm created. In such a case, malpractice insurance would not blur the incentives of the legal system at all.Now suppose in contrast that the insurance company charges all doctors the same premium, no matter what their risk. If some share of the doctors (

s) decides to spend the money to become low-risk doctors, the insurance premium each doctor paid would be R = [spL + (1 – s)pH]D. Under a remarkably wide range of circumstances, this “community rating” form of insurance blurs and may nearly completely eliminate at least the most direct and obvious economic incentives to undertake any damage-preventing activity.Although negligence law makes doctors liable for harm in the case we have constructed, community-rated insurance may well lead all doctors to choose not to prevent the risk, driving

s to zero and causing the insurance premium to rise from pL

D

to p

H

D

for everybody.

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13.5 Evidence on Actual Deterrence Malpractice Insurance and Deterrence, continued.Premiums do vary considerably by specialty, and every insurer rates doctors by their type of practice. For four of these specialties (internal medicine, general surgery, cardiovascular surgery, and neurosurgery), the relationship between average malpractice premiums and the estimated rate of negligent hospital activity is nearly perfect.

9 October 201728For these specialties, the malpractice insurance pricing seems precisely as one would expect in a competitive market, so long as the cost per claim is the same.For the other three specialties, premiums are higher, but that may be due to the visibility or emotional content of injuries in those areas.

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13.5 Evidence on Actual Deterrence Malpractice Insurance and Deterrence, continued.Rolph (1981) showed that holding specialty constant, previous claims experience explained as much of the variability in awards against doctors as did the information about specialty. For example, the average claims experience against Class VII doctors (e.g., neurosurgeons) is about seven times larger than the average for Class I doctors (e.g., family practitioners).

It is also true that the average claims experience from those with the highest costs in the past four years (holding specialty constant) was about seven times larger than those in the lowest-cost group over the past four years. Insurance companies typically do not use previous claims history to set premiums for doctors within their specialty groups. Within specialty groups, the companies practice something akin to “community rating,” whereby everybody in “the community” pays the same premium, even if the costs will differ predictably in the future.The fact that insurance companies typically do not use previous experience by doctors in setting malpractice insurance premiums reduces incentives for doctors to choose appropriately safe care.

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13.5 Evidence on Actual Deterrence Malpractice Insurance and Deterrence, continued.Even if individual insurance companies do not use “experience rating”, another common industry practice could lead to a similar result. Some insurance companies specialize in “good-risk” doctors only, while others accept any applicant. However, some states negate this market-based experience rating by operating a state-owned malpractice insurance plan that sells insurance to any doctor.

If the lowest-risk doctors can all get malpractice insurance through private firms, the state-operated plan will have an unusually large concentration of poorer risks. Unless the state-operated plan prices the insurance appropriately, the overall distribution of insurance costs will not reflect risks appropriately.States often operate such plans to try to keep doctors from leaving on the grounds that a “doctor shortage” exists, but getting a few doctors out of practice might be the best thing that could happen to malpractice insurance premiums.

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13.6 Malpractice Awards: “Lightning” or a “Broom Sweeping Clean?”Some doctors, patients, and probably some attorneys believe that malpractice claims are completely whimsical, striking providers at random (much as lightning bolts from the sky), unrelated to the quality of care provided. The alternative

view is that tort awards punish doctors for economically inappropriate behavior and that if a doctor persists in such behavior, we should expect to see multiple awards against that doctor.Several studies have now produced strong evidence on this issue. The awards do not appear at random but rather concentrate heavily within a few doctors. One analysis of claims in southern California showed that doctors who had previous claims stood a much larger chance of having successful claims against them subsequently. More precisely, of more than 8,000 insured physicians, 46 (0.6 percent of the total) with four or more lost claims each accounted for 10 percent of all claims, and 30 percent of all awards.

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13.6 Malpractice Awards: “Lightning” or a “Broom Sweeping Clean?”Sloan et al., (1989) analyzed insurance claims against doctors in Florida and found few relationships with usual markers of quality. Board-certified doctors had worse, not better, claims experience than their uncertified counterparts. The researchers found no consistent effect of medical school rankings, foreign versus U.S. medical schools, or solo versus group practices. They

did find that doctors with more frequent claims against them were more likely to have had complaints filed with the state medical examiners board.If malpractice awards are similar to “lightning”, it strikes a small handful of doctors with a much-higher-than-normal frequency, even after accounting for the effects of their specialty choice. Can conclude either that they practice unusually poor medicine or that they have a manner of dealing with their patients that invites lawsuits, independent of the quality of medicine they practice. It would also appear that many of the usual markets for quality do not detect such doctors.

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13.7 Tort ReformBeginning with the malpractice “crises” of the 1970s, state legislators have been under common, if not constant, pressure to reform medical malpractice law. Tort reforms have steadily eroded the opportunity for extremely large plaintiff awards. A common change capped the award for “noneconomic” damages (e.g., “pain and suffering” awards) to $250,000 or some comparable amount. Many states have done this in recent years.

As cases come to trial where such laws are now in effect, such caps can be (and have been) challenged as unconstitutional by plaintiffs and their attorneys. Some states, including California, Louisiana, and Nebraska, have upheld the constitutionality of caps so long as the state government can show a rational basis for the law. Others, nine in total, including Florida, Texas, Illinois, Ohio, and New Hampshire, have struck down such caps.Most of them were in the range of $250,000 to $500,000 maximum award for pain and suffering. 10 October 201733

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13.7 Tort ReformCommon practices in the legal profession have plaintiff lawyers essentially becoming equity partners in a claim, taking the case on for a share of all awards rather than for per-hour fees. This “contingent fee” system has some positive and negative features. Should prevent the filing of frivolous claims because the attorney confronts substantial fixed costs even to file a claim and would receive no compensation if no award materialized.Reduces the incentive to take on cases for patients with lower income because many medical malpractice awards use lost wages as a basis for computing awards. Thus may shut out lower income people from receiving compensation.

Highly visible awards to plaintiffs—shared usually on a one-to-two basis with attorneys (one-third to attorneys, two-thirds to plaintiffs)—created a strong public sentiment against the common structure of awards for plaintiff’s attorneys. The landmark California malpractice reform of 1975 limited attorney fees to 40 percent of the first $50,000 of the award, descending down to 15 percent of incremental awards at higher levels. Thus, plaintiffs’ attorneys in California and elsewhere now face a declining marginal revenue schedule with the size of the award, both reducing the incentive to file for large cases and the incentive to gather evidence that would increase the magnitude of awards.10 October 201734

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13.7 Tort ReformThe “structured settlement” approach has particular importance in cases of permanent injury.Under previous approaches, awards for, for example, a child brain-injured at birth might reflect the expected lifetime costs of care for the person. Under a structured settlement, the award would continue only so long as the child remained alive. Because such infants commonly die quite young, sometimes after a few years of life, the structured settlement ceases payments, which are far smaller in amount than would occur with many lump-sum awards. This

approach has been mandated into law for some patients in recent tort reform in Virginia.The effects of these various tort reforms on medical malpractice insurance premiums and awards have been documented only recently, in part because only by now has enough statistical evidence accumulated to measure the effects of these changes. Table 13.2 (next slide) displays the available data on malpractice awards over time. In the volatile period of the 1980s when tort reform was most active, one can readily see the effects of the reforms on median awards, maximum awards, and the number of awards exceeding $1 million.10 October 201735

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13.7 Tort Reform10 October 201736Data is unavailable for the time period between 1988 and 1996. Despite the eight-year hiatus, the median awards (all that were reported in 2004) appear not to have climbed much ($473,000 in 1996 versus $400,000 in 1988). Beginning in 1998, another abrupt increase took place, doubling the median awards to $1 million for three consecutive

years, although after accounting for inflation, the “real” median award remains at about three-quarters of the peak 1986 value in 2002.

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13.7 Tort ReformMedical malpractice premiums should ultimately reflect changes in insurers’ risks. One study used multiple regression analysis to study malpractice insurance premiums with data from 1974 through 1986. This study used data from all 50 states, thus taking advantage of the substantial differences of the phasing-in of tort reform across different states. Analyzed effects not only of tort reform but also of other factors such as the number of trial lawyers in the region per capita.

The most important changes in the tort law were those that capped physician liability and those that placed limits on how many years plaintiffs had to file a claim after an injury occurred.The malpractice insurance premiums were unrelated to the number of attorneys per 1,000 persons, deflating the idea that plaintiffs’ lawyers are the engine driving the malpractice cost explosion. Insurance premiums were strongly and negatively related to the number of physicians per capita. These substantial reductions in premiums and awards seem to reduce the ability of “malpractice bashers” to claim that the medical–legal system is responsible for “all of” the increase in medical care costs that has taken place during the past several decades. 10 October 2017

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13.8 How Much Can Tort Reform Reduce Costs?Dramatic claims have been made about the potential effects of tort reform on overall health care costs, premised primarily on the idea that the malpractice laws created a vast network of “defensive medicine” activity that could be eliminated if tort reform was successful. Measuring the overall effect of tort reform on health care costs has proven elusive. One innovative approach to this problem looked at state-level data on the premiums charged by health insurance plans over time between 1998 and 2006, comparing premiums in those states that reformed tort law vs. those that did not, and used the timing of the changes in the law to infer causality. Assessed the effects of some standard tort reforms:

Caps on punitive awards (aimed at punishing the doer of the misdeed beyond economic damages); Consideration of collateral resources, i.e., allowing consideration of plaintiff’s own insurance in estimating awardsJoint and several liability reform, which limits damages to each party (e.g., hospital, doctor, ambulance company, etc.) to their share of damages (without these laws, any defendant can be held liable for the entire damage, known as the “deep pockets” defendants)Caps on non-economic damages (pain and suffering, loss of enjoyment of life)10 October 201738

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13.8 How Much Can Tort Reform Reduce Costs?Their results show that the biggest effects come from limits on punitive damages, followed by rules about collateral sources, caps on non-economic damages and joint and several liability. The cumulative effect of all of these reforms was less than the sum of their individual effects, leading to a cumulative effect of a 2.1 percent reduction in premiums. Also sought to learn whether these reforms had differential effects in the normal healthcare world vs. the world of HMOs.

HMOs have unique features in controlling the costs of medical malpractice, both by affecting the rate at which it occurs and the rate of “defensive medicine” that might otherwise drive up medical costs. Separately analyzed the response of premiums for regular health insurance and for HMOs. In the HMO sample, they found no effects of tort reform on premiums. Concluded that the HMO premiums did not respond to the tort reforms, suggesting the HMOs had already squeezed out the defensive medicine activities that remained in the standard health care sector. 10 October 2017

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13.9 Tort Reform Writ LargeThe most radical type of tort reform would completely scrap the current tort system in favor of a “no-fault” insurance plan to compensate persons injured in medical misadventures. Under the workers’ compensation approach, no determination of fault is made. The system makes a determination of the magnitude of injury, on which basis insurers make payments. While this system does not completely eliminate “duels of experts”, issues of fault do not exist, and the “overhead” borne by the system to determine fault is much lower than would otherwise occur.No-fault systems completely eliminate any direct economic incentive to undertake loss-preventing activities, but that may result in little economic loss, if the current system produces little or no deterrence of negligent behavior.

Danzon (1985a) has made some calculations to suggest that even with all of its apparent problems, the medical malpractice system “pays its way” in a social cost framework if it can deter as few as 20 percent of the injuries that would occur in its absence. 10 October 201740

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13.9 Tort Reform Writ LargeVaccine Injuries: No Fault Versus TortIn 1986, the U.S. Congress passed a law that established a compensation system for people injured by vaccines: the Vaccine Injury Compensation Program (VICP). No-fault compensation system funded by a $0.75 fee on each vaccination delivered in the United States. Generally precludes using the tort system to settle vaccine injury claims, requiring that plaintiffs use the administrative adjudication system of the VICP.A

lawsuit by parents who claimed injury (autism) from a vaccine given to their daughter found its way to the U.S. Supreme Court on appeal from earlier verdicts. At issue was whether the U.S. law could legally bar plaintiffs from suing. The Supreme Court upheld the law, with the majority ruling saying, “The vaccine manufacturers fund from their sales an informal, efficient compensation program for vaccine injuries. In exchange, they avoid costly tort litigation and the occasional disproportionate jury verdict.”This ruling would appear to apply generally, and thus opens the legal door for states or the United States as a whole to switch entirely from a negligence-based tort system for medical injuries to one based on no-fault rules. 10 October 201741