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January 19, 2005

More Media Matters

Last week, I referenced Sebastian Mallaby's excellent column in The Washington Post, "The Trouble with Torts." Yesterday, in response to criticisms from some quarters, he has another good follow-up, "Better Than Lawsuits: We Need a Smaller, Predictable System."

What did, and do, Mallaby's critics say? Well, the primary attack dog has been "Media Matters," a "not-for-profit progressive research and information center dedicated to comprehensively monitoring, analyzing, and correcting conservative misinformation in the U.S. media" (see Ted's dissection of one of their prior goofs here; Media Matters is headed by truth-challenged David Brock).

Media Matters initially jumped on Mallaby's first column by questioning Mallaby's assertions, given that he had relied on the study done by Tillinghast-Towers Perrin, which Media Matters called "a highly questionable study paid for by tort reform advocates." But that's not true. As Stuart Taylor noted in his extensive letter to Stephanie Mencimer, posted today on, "while Tillinghast has accepted partial funding from tort reform groups in the past, since 2003 its reports on tort system costs have been funded internally." Moreover, like Mencimer, Media Matters "cites no evidence undermining Tillinghast’s assertion that its annual reports' purpose is 'to provide a straightforward, objective analysis of cost and trends, and not to support any particular point of view.'"

Putting aside the guilt-by-association argument, on what substantive basis does Media Matters criticize the Tillinghast report? Well, like Mencimer, they essentially take the bait hook, line, and sinker from the standard press rejoinder offered by the misbranded "Center for Justice and Democracy," an organization whose sole purpose is to support the trial bar (see my take on them here, and Ted's dissection of their recent "Zany Immunities" report here):

[T]he Tillinghast study included "administrative costs, mainly at insurance firms" in its tally of the costs of the tort system. In fact, the administrative costs, according to Mallaby, were the single largest component of the total "tort system cost." Those administrative costs include things like salaries for insurance company executives; categorizing them as a cost of the tort system is highly questionable, at best.

Well, yes and no. Tillinghast's study does include insurance industry costs as part of the administrative overhead in the system. These administrative costs are 21% of the total. Tillinghast is very frank about this point, but also about the following: administrative expense costs as a percentage of the overall tort system fell from 32.3% in the 1950s to 21.9% from 2000-03 (2004 Update, p. 7, Table 4). So including administrative expenses inflates somewhat the overall size of the tort system, it also obscures the rate of growth for the system -- i.e., tort costs have grown much more quickly if we ignore the insurance cost component.

It's also crucial to point out that administrative system costs are not "the single largest component" of tort system costs, as Media Matters asserts. Tort system costs break down as: 24% noneconomic damages, 22% economic damages, 21% administrative costs, 19% plaintiffs' attorney fees, 14% defense attorney fees. In other words, 46% go to plaintiffs, 33% to lawyers, and 21% to overhead. Even if you exclude all administrative costs from the system, attorneys consume a staggering 42% of all costs, vs. 58% for plaintiffs (the majority of which are for "noneconomic damages").

And I don't think you should. The unpredictable litigation system adds a substantial risk component that must be insured against. As Taylor notes: "The only insurance costs included in the $233 billion Tillinghast total are liability payments to allegedly injured parties and their lawyers, payments for legal defense and other costs of insured parties, and administrative costs (overhead) directly attributed to tort liability coverage." The "salaries for insurance company executives," to which Media Matters wants to deflect attention, are a miniscule fraction of both this administrative component and the overall $246 billion tort system. (Moreover, "only a relatively small percentage of executives’ salaries are allocated to tort liability, with the rest allocated to other lines of business.")

Of course, Media Matters doesn't stop there. They pooh-pooh Mallaby's comparative reference points for administrative expenses, Social Security (3%) and Medicare (2%): "The tort system is an adversarial one, while Social Security and Medicare largely are not; it would be surprising if the tort system didn't have higher 'administrative costs.'" But that's the point, isn't it? Advocates for non-adversarial systems base their arguments significantly on the lower administrative costs such systems promise. In the working paper I prepared for the Manhattan Institute's conference on the 9/11 Victims Compensation Fund last week, "Tragic Solutions: The 9/11 Victim Compensation Fund, Historical Antecedents, and Lessons for Tort Reform," I take an extensive look at such tort alternatives, including workers' compensation systems, no-fault auto insurance, and the Vaccine Injury Compensation Program. The history of nonadversarial systems certainly isn't perfect, but undoubtedly the adversarial legal system is much more administratively costly than conceivable substitutes.

Media Matters of course offers no evidence that the adversarial tort system should be preferred to lower-cost alternatives due to its positive effect on safety outcomes; but that doesn't stop them from attacking Mallaby for not referring directly to studies that question the premise that the tort system is effective at improving safety: "Mallaby's . . . construct ['Sure enough, studies of injury rates often find no evidence that a rise in litigation is followed by an increase in safety.'] makes it difficult for readers to assess the credibility of his claim; one wonders if he's referring to more studies financed by advocates of tort reform."

Well, I question how much we should expect columnists to cite to the academic evidence supporting their claims in an op-ed, but I'll point to just a few such studies, which I also cite in my paper:

George Priest, Products Liability Law and the Accident Rate, in Liability: Perspectives and Policy (Robert Litan and C. Winston, eds. 1988)(time series analysis showing that the decline in accident rates "has been steady and consistent both before and after the initial expansion of products liability law," with "little, if any, correlation between the decline in accident rates and the expansion in tort liability," characterized in Richard Epstein, Cases and Materials on Torts 889 (7th ed. 2000));

W. Kip Viscusi, The Social Costs of Punitive Damages Against Corporations, 87 Geo. L.J. 285, 297-98 (1998); W. Kip Viscusi, Why There Is No Defense of Punitive Damages, 87 Geo. L.J. 381 (1998)(cross-sectional analyses showing that "[s]tates with punitive damages exhibit no safer risk performance than states without punitive damages," so that "there is no deterrence benefit that justifies the chaos and economic disruption inflicted by punitive damages");

Troyen A. Brennan, et al., Incidence of Adverse Events and Negligence in Hospitalized Patients: Results of the Harvard Medical Practice Study I, New Engl. J. Med. 324, 370-6 (1991); The Nature of Adverse Events in Hospitalized Patients: Results of the Harvard Medical Practice Study II, New Engl. J. Med. 324, 377-84 (1991)("finding[] [that] most persons with potentially legitimate claims appeared not to file them, but most claims that were filed had no evident basis," characterized in Richard Anderson, An "Epidemic" of Medical Malpractice? A Commentary on the Harvard Medical Practice Study, Manhattan Institute Civil Justice Memo No. 27 (July 1996));

Janet Cooper Alexander, Do the Merits Matter? A Study of Settlements in Securities Class Actions, 43 Stan. L. Rev. 497 (1991)(event study concluding that settlement value in securities fraud cases is not function of merit).

See generally Peter Huber, Liability: The Legal Revolution and Its Consequences (1988)(substantially disputing the tort system's efficacy in increasing safety and concluding: "The indiscriminate liability that characterizes modern tort law has done more than prevent the progress of safety: It has forced several great marches backward. The strategy of reducing liability by reducing effort and initiative across the board is all too common, and time and again one finds that safety itself is the largest casualty. . . . When all is said and done, the modern rules do not deter risk: they deter behavior that gets people sued, which is not at all the same thing.").

Finally, Media Matters attacked Mallaby's initial column with the picayune point that he conflated "pain and suffering" and "emotional distress" damages. Who cares? They totally sidestep Mallaby's broader point:

A tort system is a form of insurance: Consumers accept higher prices for products and services in exchange for the chance to be compensated if the product or service harms them. Outside the tort system, we have plenty of examples of people buying insurance or warranties. People insure their cars, homes, refrigerators; they want protection against financial setbacks. But people don't buy much insurance to protect themselves from pain and suffering; their revealed preference is that they don't want it. So why have a tort system that provides over $50 billion in pain-and-suffering awards annually?

People don't generally buy insurance for "pain and suffering." They don't generally buy insurance for "emotional distress" either. Of course, a big reason is that any such insurance policy would be exhorbitantly expensive, given the difficulty in assessing such values, unless the policy were somehow capped. But isn't that the point?

In today's column, Mallaby rebuts many of these criticisms. Confronting the ad hominem attack on Tillinghast's study, he notes that the nonpartisan Congressional Budget Office (1) cited the same Tillinghast numbers, (2) called them the most reliable available, and (3) concluded, "The current tort system seems to be an inefficient way to compensate victims." Mallaby goes on to cite to several experts, including Harvard's Kip Viscusi (whose research on punitive damages is cited above), Wharton's Patricia Danzon, and Mark McClellan and Daniel Kessler (for a survey of empirical evidence on medical malpractice litigation, see Kessler's Manhattan Institute working paper, which we discussed here).

Media Matters was quickly back on the warpath, again pointing out Mallaby's supposed "mistakes." They recycle some of their same argument, relying again on the Center for Justice and Democracy, and contend:

Instead, Mallaby simply asserted that "the trial bar's 'no real numbers' claim is nonsense," hoping readers take his word for it, and again referred to these "administrators" expenses (read: insurance company salaries, among other things) as "direct costs of torts." As Mallaby might say: Nonsense.

Again, though, Media Matters obfuscates matters by playing fast and loose: they quote Mallaby out of context. They claim that Mallaby "simply asserted" that the trial bar's "no real numbers" claim was "nonsense." But that's not true. Rather than merely "hoping readers would take his word for it," Mallaby directly preceded that statement by (1) citing to the CBO's use of Tillinghast, (2) citing to Viscusi's support of their numbers, and (3) quoting Danzon's conclusion that "compensation can be effected more cheaply and arguably more equitably through first-party health and disability insurance, which operate on lower overhead, pay in a more timely fashion, and pay all victims without regard to cause of the injury." A media watchdog that deliberately confuses in its effort to debunk? Who'da thunk it?

A large portion of Media Matters' most recent criticism of Mallaby takes him to task for his honest qualification that it's uncertain whether we can extrapolate from Kessler and McClellan's 1996 finding that "states that enacted tort reform reduced spending on hospital patients with heart complaints by 4 percent, with no adverse health consequences." Mallaby stated: "We don't know if hospitals could achieve similar savings across the board." Media Matters' retort:

"We don't know" whether the McClellan-Kessler study can be applied across the board, Mallaby wrote. But as has noted, the Congressional Budget Office (CBO) looked at the McClellan-Kessler paper and concluded:
When CBO applied the methods used in the study of Medicare patients hospitalized for two types of heart disease to a broader set of ailments, it found no evidence that restrictions on tort liability reduce medical spending. Moreover, using a different set of data, CBO found no statistically significant difference in per capita health care spending between states with and without limits on malpractice torts.

Did the exceptionally cautious CBO say that? Yes. But in the very next sentence they went on: "Still, the question of whether such limits reduce spending remains open, and CBO continues to explore it using other research methods." Again, Media Matters refuses to show the full context of the quote they suggest debunks Mallaby. Essentially, the CBO's ultimate conclusion buttresses Mallaby's claim that "we don't know" the overall impact of tort reform on defensive medicine costs. (And as Ted noted before, Media Matters not only reverses CBO's intent through "quote mining," it "treats the CBO as authoritative" on this misleading point but ignores its broader conclusion, quoted by Mallaby, that "[t]he current tort system seems to be an inefficient way to compensate victims.")

(I also note that the CBO's conservative assessment notwithstanding, a variety of studies do offer substantial cause to believe that medical malpractice liability's impact on defensive medicine is significant and, a fortiori, that lowering medical malpractice liability costs and/or reforming the system to improve its ability to identify actual doctor error would have a significant effect on overall health costs and quality. For a summary of this literature, see Daniel Kessler's MI working paper, section II, pp. 6-13. Also, as Ted noted in his previous post on Media Matters' misstatements, the U.S. Department of Health and Human Services, in comparison to the CBO, "argues that defensive medicine cost savings from litigation reform would be in the tens of billions.")

So does Media Matters matter? Perhaps. But at least on tort reform, it's becoming increasingly clear that it makes gross misstatements and mischaracterizations in its purported attempts at "correcting conservative misinformation." If it keeps that up, I doubt it will matter very long.

Posted by James R. Copland at 07:11 PM | TrackBack (0)

Statistics/Empirical Work



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