Frameshop: Compensation Caps, aka Medical Malpractice Tort Reform

This is a rewrite of an earlier editorial length article on
the subject of ‘tort reform.’ In the prior version, I
stayed within the framing of those seeking to limit the liability of
doctors and insurers. By challenging the frame, I think the argument
becomes more powerful. The facts don’t struggle against the opposing frame, they
support the new one. Rhetorical figures become more powerful and invested with
clearer values. This is not however a complete reframing of the issue; it is only a negative frame. It creates an alternative way to view the opposing policy, but it does not create a solution. The packaging of the right way to approach medical malpractice policy awaits another day. That framing excercise is harder because the policy package is not simplistic – rather it is a complex package of reforms which is difficult to summarize. The reason I’m republishing this article, is a Harvard School of Public Health study of malpractice claims was just published that demonstrates very clearly that the problem of unmertiorious claims is vastly overstated, and is not addressed by arbitrary award caps. Also, I was adding some material to Utah Senate candidate Pete Ashdown’s wiki on health care, and was thinking about the issue of ‘tort reform’.

The
medical malpractice (med-mal) insurance industry, some politicians, and
even some misguided doctors, have of late been misleading the public
about the efficacy of caps on med-mal awards, a.k.a. ‘tort reform,’ to
contain healthcare costs. These people have generated a deluge of
coordinated letters to editor and public relations events in Arizona
recently. They are telling the public that med-mal awards are driving
the high inflation rates in the health care sector we’ve seen over the
past several years. But the truth is that their so-called ‘tort reform’
is just a free ride for insurers and incompetent doctors on the backs
of seriously injured patients.

‘Tort Reform’ is really nothing
more than arbitrary compensation caps protecting doctors who harm or
kill their patients and the companies who insure them. Policy makers
actually interested in reforming the torts process would advocate for
ways to remove non-meritorious claims from the system, not for placing
a strict limit on the compensation a jury can award to victims of
malpractice. The cost of caring for a child paralyzed or otherwise
disabled for a lifetime by malpractice can run into the millions, yet
these so-called ‘reformers’ want to cap all awards at a low level,
regardless of the facts of the case. That’s not justice, that’s risk
management, and it’s not what our court system is based upon. Why is a
legislator, who may be getting campaign contributions from the
insurance industry, better qualified to put a price on a lifetime of
pain than a fellow citizen who is disinterested but knows the facts of
the case?

Exploiting consumers’ understandable concern about
the affordability of healthcare, compensation cap advocates mislead the
public into supporting the curtailment of their own right to full
compensation for all damages due to malpractice. But it is high rates
of inflation in healthcare costs generally that cause inflation of
med-mal premiums, not the other way around; prescribing compensation
caps to contain healthcare costs is like trying to make the tail wag
the dog.

Although premiums for med-mal insurance have risen
sharply in the past few years, this increase is not due to an
‘explosion’ in settlements and jury awarded compensation to victims of
medical malpractice. In fact, the increase in med-mal payments conforms
closely to the overall rate of medical inflation in most states. There are some states in which the premium inflation rate is higher, but even state-adopted compensation caps have had only a modest effect on premium rates, while harming injured patients enormously. A much greater effect is achieved by adopting more stringent insurer financial requirements, and using pre-trial expert commissions to weed out unmeritorious cases earlier.

Increasing
premiums are actually the product of a poor investment
environment and negligent investment management by insurers. Because med-mal insurance companies depend on financial
investments for the bulk of their profits, premiums for med-mal
insurance have historically risen sharply in response to economic
downturns. When interest rates and the equity markets are down,
insurers increase premiums to preserve industry profitability. Current
calls for compensation caps are reminiscent of those heard during past
recessions.

Nor do Med-mal torts constitute a significant share
of healthcare costs. Even with recent inflation, the average doctor’s
premiums are less than 4% of his revenues, and malpractice claims
amount to only 1/2 of 1% of total healthcare costs. The average claim
is a modest $140,000, and the average settlement is just under $30,000.
Less than 5% of awards top one million dollars (and about 3/4 of those
are reduced by the courts to an average of $250,000). These averages
are already well below most suggested compensation cap limits. Medical malpractice is not a court lottery, it is the way we make whole those injured by gross negligece.

Few
injuries even make it into the court system. Only 1 in 8 injuries due
to malpractice are ever filed, and more than 3/4 of filed claims are
dismissed. The existing legal system, and peoples’ natural reluctance
to sue doctors, winnows out the vast majority of claims already. We can
do a better job of ensuring that frivolous suits do not go forward by
vetting cases independently before they are filed, and having higher
standards for med-mal lawyers. But arbitrary compensation caps will not
eliminate nuisance suits; they will only harm the victims of
malpractice.

Some claim that the savings realized by elimination
of incentives for physicians to practice ‘defensive medicine’ justify
compensation caps. But the non-partisan Congressional Budget Office has
found no statistically significant difference in per capita healthcare
spending between states with and without limits on malpractice awards.
Defensive medicine costs are illusory and rhetorical.

To reduce the number and
expense of med-mal claims, the most sensible approach is to improve the
quality of healthcare, not to arbitrarily limit the payments to people
who have suffered terrible injuries. Properly compensating victims
according to objective juries’ awards isn’t causing a crisis in
malpractice insurance; the ultimate cause is the breakdown of
self-regulation in the medical profession.

It is a very small
number of incompetent doctors who cause the public a disproportionate
amount of the suffering and expense malpractice causes. Fewer than 5%
of doctors are responsible for more than 50% of all med-mal claims,
but, of the roughly 5,000 doctors nationally who have paid four or more
med-mal awards, fewer than 15% have ever been disciplined by their
state boards. Physicians need to more stringently police their own, and
force med-mal insurers to rate doctors by their experience and track
record, so that good doctors aren’t in the same risk pool with
incompetents who are regularly harming their patients, as is now the
case.

Compensation caps are not a workable solution to the
problems of our health care system. Several states already have caps on
non-economic damages in med-mal cases, including Texas, California,
Florida, Missouri, and Nevada. Given that some of our most populous
states have caps, one would think that this might have some effect on
med-mal premiums nationally or at least within those states, but states
with caps have continued to see their premiums go up, even as
compensation to victims has gone down.

Successful health care
cost containment will come from comprehensive reform in how we deliver
health care services, not compensation caps. Nations who deliver health
care more universally, use more preventive care, and who reduce the
administrative costs through a national insurance system, realize per
capita savings of 25% or more compared to our system. Compensation cap
advocates cannot credibly claim anything even approaching such a
significant savings. If we are going to decide to place the burden of
cost containment so heavily on the shoulders of those maimed and
crippled by malpractice, shouldn’t we at least be able to demonstrate
savings greater than those available by any other means?

Reforms
are certainly needed where high med-mal premiums are driving some
physicians out of vital, high-risk specialties, such as surgery or
obstetrics, but compensation caps don’t address the real problems of
these specialized market segments. Government reinsurance assistance,
carefully considered legislative reform of physician liability in
problem specialties, expert pre-litigation review boards, and other
creative, targeted approaches will produce real, and fair, results.
Compensation caps are a cure far worse than the disease they are
purported to cure; doctors call such nostrums snake oil.

Compensation
caps are nothing but a means of helping insurance companies cushion
their business cycles, not a means of containing the run-away costs of
our health care system. Compensation caps are more pork for big
insurance at the expense of severely injured victims.