by Charles Silver & David A. Hyman

We once thought Democrats would accept tort reform to win Republicans’ support for national health care legislation.  Now, however, Democrats have dispensed with bipartisanship.  Perhaps they think they can ram health care legislation through without any Republican backing.  Perhaps the price required to obtain even a few Republican votes was too high.  Perhaps Democrats received too much pressure from the trial bar.  Whatever the reason, neither the bill passed by the House nor the bill pending in the Senate contains any of the tort reform provisions Republicans want. To the contrary, the House health care bill is anti-tort reform.

Not only does it reject the entire slate of lawsuit restrictions Representative John Boehner put forward in the Republican alternative to the Democrats’ bill; it contains a provision that will reward states for scrapping damages caps and other tort reforms many already have in place.  This provision flew beneath the radar during the House debate, but the editorial board of the Wall Street Journal condemned it after the vote took place.  Describing the provision as a  “hidden Pelosi tort bomb,” the Journal editors predicted that “[i]f it passes in anything like its current form, we are going to be cleaning up the mess for decades to come.”

Most predictions that the sky will fall are wrong. This one is wrong as well.

Empirical studies of medical malpractice claims–including studies by us of Texas, long notorious as a pro-plaintiff haven–have thoroughly debunked the claim of a “lawsuit” crisis.  Malpractice insurance premiums spiked in Texas beginning in 2000, but there was no preceding or concurrent spike in claims or payouts.  Indeed, from 1988-2005, claims and payouts were either stable or declining, once one controls for population and inflation. (The linked article runs through 2002; we have since updated the analysis through 2005, with similar findings).  Further, as decades of research make clear, the medical malpractice liability climate is stable.  Overall claiming correlates with population, consumption of health care services, lost earnings, and health care costs.“Blockbuster” jury verdicts are rare, and are almost never paid in full.  This is not to suggest the liability system is perfect; it is slow and expensive, and it systematically under-compensates negligently injured plaintiffs.

In this column, we examine the menu of reforms offered by Rep. Boehner and the anti-tort reform provision that made it into the House bill.  We also consider the claims made by the editors of the Wall Street Journal.

The House Republicans’  Bill

Rep. Boehner’s proffered alternative to the House Democrats’ health care bill contains a smorgasbord of lawsuit restrictions intended to apply to all health care lawsuits, including product liability cases involving drugs, medical devices, or biological products.  The proposals include:

• A 1-year statute of limitations on medical malpractice claims involving patients who are adults, and a somewhat longer and more complicated limitations period for claims involving children.
• A $250,000 cap on non-economic damages recoverable from all sources for the same injury, with no adjustment for inflation.
• A cap on punitive damages of $250,000 or two times the plaintiff’s economic damages, whichever is greater, plus a heightened standard of proof and special procedural requirements for punitive damages claims.
• Requirements that jurors be kept in the dark about the damage caps.
• Proportionate liability when multiple health care providers were responsible for a patient’s care.
• Broad judicial discretion to take money from plaintiffs’ lawyers and to give it to plaintiffs.
• A sliding scale of caps on contingent fees, with a maximum of 15% of any amount recovered in excess of $600,000.
• Abrogation of the collateral source rule.
• Periodic payment of future damages in all cases where they exceed $50,000.
• A set of complicated preemption provisions that, it appears, would have allowed state laws more favorable to health care providers to remain in place.

These proposals, which taken as a whole go well beyond the reforms adopted by any of the 50 states, would profoundly affect medical malpractice litigation. Texas adopted some of these measures in 2003, including a less-restrictive cap on non-economic damages.  We recently published a paper estimating that the Texas non-econ cap would reduce payouts in malpractice cases by about 18% in settled cases and 27% in tried cases, with larger impacts on claimants who are deceased, unemployed, or elderly.  In unpublished work, we find that post-reform, the number of claims and mean and median payouts per claim have dropped significantly.  The Republican proposals will likely have a greater impact across a broader range of lawsuits.

The proposals in Rep. Boehner’s bill are all examples of “dumb” tort reforms.  They would insulate health care providers and product manufacturers from liability without getting anything in return.  Doctors who practice outdated medicine would benefit as much as doctors who carefully follow evidence-based guidelines — maybe more.  Hospitals whose employees ignore mistakes or hide them would gain every bit as much as, and arguably more than hospitals whose employees report mistakes and identify their root causes.  And so on.

To summarize, “dumb”  tort reforms give away the store with no assurance of any demonstrable gain for patients or taxpayers.  “Smart” tort reforms tie liability reductions to improved performance, including adherence to treatment guidelines and proven error reduction strategies. “Dumb”  tort reforms are wrongheaded, regardless of whether one wants to improve quality, reduce spending, or both.

What about the potential of tort reform to reduce defensive medicine?  The Wall Street Journal believes that lawsuit restrictions are “a rare reform provision that really would reduce health-care costs,” citing a report by PriceWaterhouseCoopers estimating that doctors order $240 billion in tests per year “to protect against the risk of lawsuits.”  Peer-reviewed empirical studies of the impact of tort reforms on defensive medicine suggest that this estimate is wildly over-stated.  The most recent such study found that tort reforms had little effect on Medicare spending, and concluded that “assertions that tort reforms will reduce waste of scarce resources seem, at best, highly premature.”

A more plausible figure comes from the Congressional Budget Office (“CBO”), which recently “scored”  a package of tort reforms similar to the Republican proposal.  In a letter to Senator Orrin Hatch, the CBO estimated that the package would “reduce federal deficits by roughly $54 billion over the next 10 years.” Both Rep. Boehner and the Wall Street Journal trumpeted this figure.

How did the CBO arrive at this number?  It estimated the reforms would reduce federal health spending by $41 billion and increase federal tax revenues by $13 billion.  Taken together, this totals $54 billion, or $5.4 billion per year over the ten year budget horizon.  The CBO also noted that tort reform would likely lower malpractice premiums by roughly 10%, or $3.5 billion per year, or $8.9 billion a year (which would increase to $11 billion per year once the reforms are fully in place).  These amounts certainly sound very impressive – but as the CBO report notes, the combined per-year savings once the reforms are fully effective total roughly 0.5% of health care spending.

The House Democrats’ Rollback Provision

As mentioned previously, the House bill not only omits all the Republican tort reform proposals, it may even cause states to abandon some existing restrictions on lawsuits.  Section 2531 of the bill would authorize the Secretary of Health and Human services to provide financial subsidies to states that adopt “alternative medical liability” laws.  A state satisfies this standard if it requires a certificate of merit or adopts an “early offer” settlement regime – but it does not satisfy this standard if it caps damages and/or limits attorneys’ fees.

About 30 states currently cap the damages patients can recover in medical malpractice suits. Sixteen states limit attorneys’ fees.  It is not entirely clear whether states will have to repeal these caps and limits if they wish to receive the financial subsidies.  Section 2351 could be interpreted to mean that a state that already has a damages cap and/or fee limit is not disqualified from receiving the subsidies if it also adopts a certificate of merit or early offer regime.  Even if that interpretation is wrong, and states have to repeal their damages caps and fee limits to obtain the subsidies, the size of the proposed payments has not been determined.  Health care providers, who lobbied heavily to enact these damages caps and fee limits, are powerful players in state politics.  Unless tens of billions of dollars in federal funds are made available, it is plausible that nothing much will change as a result of Section 2351.

The Wall Street Journal asserts that without damages caps and fee limits, “jackpot justice” will result, as the prospect of winning “[h]uge contingency fees and damage awards” encourages frivolous lawsuits.  “Jackpot justice” is a tired and wholly inappropriate description of the way the malpractice liability system treats claimants.  Patients rarely come out ahead.  Most lose badly, and the patients who receive the largest awards tend to lose the most.  To recover a large sum, a patient must suffer a terrible injury.  In 36% of Texas malpractice claims with payouts of greater than $25,000 (1988$, or roughly $50,000 in 2009$), the injury is death.  In other cases with large payments, the injury is brain damage, paraplegia or some other awful impairment.  Even with these large awards, payments fall far short of actual losses. Unlike lottery winners, patients who receive large tort awards would probably prefer never to have spun the wheel of (mis)fortune.

The real jackpot winners in the malpractice liability system are the many health care providers who harm patients negligently but get off scot free.  The rate of medical errors is high; the Institute of Medicine has estimated that between 50,000 and 100,000 Americans die every year as a result of medical negligence in the hospital, and a far greater number are injured.  Most of those who are negligently injured never even file a claim – and when they do, they often lose.   In a recent (2006) closed claim study conducted by researchers at the Harvard School of Public Health, “[o]ne in six claims involved errors and received no payment.”

Frivolous malpractice lawsuits are another bogeyman, as anyone who read the 2006 Harvard study would know. It concludes that “portraits of a malpractice system that is stricken with frivolous litigation are overblown.” Although a high percentage of claims are dropped without payment, there is no empirical evidence the frivolous malpractice lawsuits (i.e., claims that are known to be without merit at the time they are brought) are common.  Instead, cases are brought and then dropped because the merits of claims are often hard to determine until lawsuits are filed and the information hidden in providers’ files becomes available. Once that information is disclosed, plaintiffs’ attorneys drop weak claims like hot potatoes.  Because the tort system is stingy and plaintiffs’ attorneys are only paid when they win, the most likely consequence of holding onto a hot potato is that one will be burned.

Finally, the Wall Street Journal argues that tort reform results in “a flood of new doctors.” Texas Governor Rick Perry has made similar claims, arguing that applications to practice medicine in Texas “skyrocketed,” with “14,498 doctors either returned to practice in Texas or began practicing [there] for the first time” after tort reform was passed.  As we show in an earlier article these assertions are misleading.  They paint far too rosy a picture of the impact of tort reform on the size of Texas’ physician population because they ignore the number of doctors who retire, leave the state, or are otherwise unavailable to treat the general population of Texas residents.  They also fail to control for preexisting patterns (e.g., how many of these “new” doctors would have come to Texas anyway, and how many would have left, if past trends had held).  Using accurate data and applying appropriate controls, it is clear that the number of physicians in Texas grew every year before tort reform was adopted and that there was no spike in the number of physicians after lawsuit restrictions were imposed.  To the contrary, Texas’ physician population actually grew more slowly after the state adopted tort reform.

American Medical Association (“AMA”) statistics tell a similar story.  Texas ranked 40th in physicians per capita in 2003, 43^rd in 2006, and 41^st in 2008. Less than a month before the Wall Street Journal editorial appeared, the AMA identified Texas as a “hot spot” state where Medicare patients have difficulty finding care.  These results are consistent with earlier research finding that liability regimes exert little influence on physicians’ location decisions.

Of course, if Texas had attracted more physicians by limiting lawsuits, it could only have done so by luring doctors away from other states.  If all states had the same federally-imposed liability regime, however, no state could enjoy an advantage because liability would cease to affect doctors’ location decisions.  So, if one believes that tort reform substantially affects location decisions, federal legislation on the subject can only hurt the states that have already adopted tort reform.

Conclusion

We do not know whether the bill that emerges when the House and Senate versions of the health care bill are reconciled (assuming the Senate bill passes) will contain the House’s liability provision.  If it does, though, we are confident that the liability provision will have little effect on health care spending or physician location decisions.  Pelosi’s hidden tort bomb will blow up myths about the medical liability system, if it explodes at all.

Professor Charles Silver holds the Roy W. and Eugenia C. McDonald Endowed Chair
at the University of Texas School of Law, where he writes and teaches
about civil procedure, professional responsibility and, increasingly,
health care law and policy. Professor Silver is currently an Associate Reporter on the American Law
Institute’s Project on Aggregate Litigation and a member of the
ABA/TIPS Task Force on the Contingent Fee. He has been Visiting
Professor at the University of Michigan Law School and the Vanderbilt
University Law School.

Professor David Hyman is considered to be one of the country’s top health law scholars,
and is the Richard W. and Marie L. Corman Professor of
Law, teaches civil procedure and health care regulation. His principal
research interests are the regulation of health care financing and
delivery and empirical law and economics. Professor Hyman has published
articles on a wide range of subjects, including medical malpractice,
managed care, consumer protection, narrative, professional
responsibility, tax exemption, and civil procedure.