May 2005 Archives
Trial lawyer advocates often repeat the silly assertion that medical malpractice premiums spiked in recent years because insurance companies had to recoup bad stock market investments. It's an argument refuted often enough before (here, here, and here (scroll to near end), for instance) but it's nice to see that the AMA has assembled a two-page memo (PDF) spelling out why it isn't so; in particular, it points out, regulators limit these insurance companies from keeping more than a minute share of their investments (<10 percent) in equities, and their investments in that sector have not underperformed the market generally.
Mark K. Moller of the Cato Institute has an article in the Harvard Journal of Law and Public Policy (Summer 2005). SSRN abstract follows:
This article (1) argues that litigating claims in the form of a class action sometimes violates due process and (2) suggests an original framework for reforming the class device, which flows naturally from analyzing class action abuse as a problem of constitutional dimension.
Part I explains the roots of the due process problem with class actions - which I term the rule of law problem - and addresses a variety of counter-arguments. Briefly, liberty depends upon individuals' ability to plan their conduct against a backdrop of predictable rules and consequences. Yet, courts managing class actions frequently unsettle established legal prescriptions in order to facilitate aggregated proceedings. Worse, they do so without reference to any intelligible principle, spawning deep uncertainty about the acts that might give rise to liability in the class context. The rule of law problem is, moreover, exacerbated by the structure of the federal multidistrict litigation procedures.
Part II analyzes the Class Action Fairness Act, concluding it is unlikely to resolve the rule of law problem and, furthermore, may be inconsistent with the text of Article III. I then propose a series of additional reforms designed to incentivize constitutional objections to class actions at the state and federal levels. These changes, which include expansion of federal removal power over constitutionally suspect class actions litigated under inadequate state procedural protections, promote three overarching structural goals: decentralization of mass litigation, cooperative federalism, and judicial review. The proposed reforms are consistent with the the structural considerations that animate the Court's current understanding of federalism and separation-of-powers.
Out this spring is a new book on legal reform from Atlanta attorney Jonathan B. Wilson (bio). Haven't seen a copy of it yet, but it's said to recommend offer-of-settlement-driven fee-shifting and limits on punitive damages. The author's also got a website/blog.
On Wednesday, June 15 from 10 a.m. to 2 p.m. the Manhattan Institute and Milken Institute will jointly present a discussion and luncheon on "Trial Lawyers, Inc.: California/A Report on the Lawsuit Industry in California, 2005", the Institute's recent report on the workings of the litigation business in the nation's largest state. Among the discussants will be the MI's Jim Copland and the Milken Institute's Michael Klowden; John Sullivan of the Civil Justice Association of California and prominent Los Angeles plaintiff's attorney Thomas Girardi; and, speaking at lunch, philanthropist William E. Simon Jr. The event will be held at the Milken Institute's conference facility in Santa Monica and CLE credit is available; a registration form is here (PDF).
Quoth the Times: they're "newly empowered -- and often newly rich ... They are often the only people standing between their investment firms and a lethal blow from the government, and their status is assured and growing." The article concentrates on Wall Street, but its observations could probably be carried over to some other high-legal-risk sectors of the economy as well. Brad Wendel comments.
The Economic Policy Institute, a group closely tied to labor unions, has released a report rehashing the lawsuit lobby's "it's all just a myth" take on the litigation problem. In particular, like ATLA and the Center for Justice and Democracy before them, EPI is extremely concerned to discredit the cost estimates periodically put out by Tillinghast/Towers Perrin of the tort system's direct burden on the U.S. economy. Rather than just sit and be sniped at, Tillinghast/Towers Perrin has put out a defense of its numbers (PDF), which in turn provoked an EPI attempt at rebuttal (PDF). Insurance Journal covers the controversy here and here.
Jon Coppelman of Worker's Comp Insider discusses a recent case in which the surviving family of Christa Worthington, a woman murdered in her secluded Cape Cod home in a widely publicized case, is suing the trash-hauling company that employed her alleged murderer. For what set of job vacancies should employers be obliged to carry out criminal background checks? The answer cannot reasonably be "all of them", yet all employees are potential committers of crimes, and some bounds must inevitably be drawn around the obligation. And of course there is the question whether it is socially desirable or even legally permissible for employers to exclude ex-offenders from lowly jobs; for a particularly horrifying example of the latter problem, see Overlawyered, Sept. 24, 1999.
Legislation introduced by Texas state Rep. Joe Nixon would require that out-of-state medics testifying as expert witnesses in Texas court proceedings submit themselves to the disciplinary authority of the state's Board of Medical Examiners, according to this opinion piece. And blogger "Dr. Tony" did some Google searching on medical+malpractice+expert+witness and presents some of the findings as a roundup.
In case after case, [Priscilla] Owen's critics give almost no consideration whatsoever to the legal merits of her decisions, focusing instead on the end result. In each case, if a corporation is the winner, groups like Earthjustice and the Alliance for Justice assume Justice Owen got it wrong. Such an approach to judicial decision-making is utterly lawless and a recipe for true judicial activism as it elevates policy preferences above the law.
And Beldar (May 19) has a spirited defense of Owen's dissenting vote in a case seeking to affix negligent-hiring liability on the Kirby vacuum cleaner company over a rape committed by "its independent contractor's independent contractor", as Justice Nathan Hecht put it.
...share a penchant, argues Tom Kirkendall, for trying cases in the press through "inflammatory public statements about subjects of their highly-publicized criminal investigations", as when Spitzer took to the Sunday talk shows to announce that AIG had "already acknowledged" "over a billion dollars of accounting frauds". Between the tendency of many journalists and public figures to accept the characterization as fraud of many kinds of complex financial transactions, and the way the plea bargaining process can irresistibly pressure executives to buckle and give the testimony prosecutors wish them to give, there is a real danger today in white-collar law enforcement of "erod[ing] the rule of law to convict an unpopular defendant". Whole post is here.
Mississippi Gov. Haley Barbour is hoping the controversy about a $14 million fee payable to a private crony of state AG Jim Hood following the negotiated settlement of a tax claim against MCI (see May 13) will spur legislative reform to keep the same sort of thing from happening over and over again. Specifically, Barbour "is asking lawmakers to pass a bill that would require legislative review, and public disclosure, before private lawyers make big bucks on state cases." Virginia, Texas and Colorado are among the states that already have enacted such protections.
On Thursday, Jun. 9, AEI is giving a morning panel in Washington, D.C. on the topic "Government by Consent Decree?" Panelists will include Sens. Lamar Alexander and (invited:) Jeff Bingaman; Rep. Roy Blunt; Michael Greve of AEI; and Simon Lazarus of the National Senior Citizens Law Center. From the description:
U.S. Senator Lamar Alexander (R-Tenn.) and U.S. Representative Roy Blunt (R-Ark.) have introduced legislation to curtail and amend federal court consent decrees. Such decrees, often running for many years or even decades, subject the state administration of federal programs (for example, Medicaid and environmental policies) to ongoing judicial oversight and management. Supporters of the legislation argue that consent decrees violate federalism principles and often bind state legislatures and local officials to "locked in" policies long after the original offense could have been addressed by legislative or administrative means. Opponents object that the proposed legislation threatens both judicial independence and the litigants' statutory rights.
Do consent decrees require a narrower scope? Should legislation mandate a timetable for the modification and dissolution of consent decrees? Panelists will discuss consent decrees and the proper balance between the federal judiciary and state authority.
Washington, D.C. Mayor Anthony A. Williams has strongly endorsed reform and put forth a proposed Health Care Reform Act of 2005, but it faces tough sledding in a City Council where trial lawyers have much clout. (Washington Examiner, May 4; Washington Times, May 6 and May 14). Notice, in the Examiner article, the bald-faced assertion attributed to the head of the area trial lawyers' association: "And there's no data, [Wayne R.] Cohen said, that confirms any correlation between caps and malpractice insurance rates" -- although such a correlation is among the best-attested of all findings in malpractice research.
This paper was published in Regulation in 1995, Number 4. It is an argument in favor of replacement of tort with contract for harmful events where the parties have a pre-injury relationship. It provides some speculation about what such law would look like. In particular, I argue that parties would probably not want to be able to sue for nonpecuniary damages (e.g., pain and suffering) and would want limited options for punitive damages. The paper also discusses the magnitude of the U.S. tort system and compares it with the U.S. tort system in the past and also with foreign tort systems. This suggests that excess tort costs (in 1995) were between $500 and $900 per household. This paper may be viewed as a summary of my 1993 AEI book, Tort Reform by Contract.
Just a few months ago, it will be called, extravagant claims were being bandied about that the then-pending Class Action Fairness Act would gut consumers' rights, wipe out the class action as a remedy for business misconduct, and so forth. Now that the bill has become law, however, we learn (per Alison Frankel in The American Lawyer) that "plaintiffs lawyers are less worried about the impact of the reform on their practices than might be expected." Meritorious cases, it seems -- and all lawyers will publicly count their own cases in that category -- will do well in federal court after all. "The ultimate result will be the same," claims Illinois's Stephen Tillery, well known for his successes in state-court class actions. High-powered national firms like Lieff Cabraser and Susman Godfrey already spend much or most of their time in federal court. And plaintiff's lawyers are exploring ways to turn the new rules to tactical advantage, as by leveling demands for defendants' customer lists on the grounds that they are necessary in determining whether a case is properly removeable to federal court. "If there's one absolute in litigation, it's never to underestimate the resourcefulness of the plaintiffs bar." Is it too late to issue a consumer recall on last year's doomsaying anti-CAFA rhetoric?
Last year, in a little-noted and last-minute amendment to medical malpractice legislation, the New Jersey legislature enacted a measure banning "retaliatory action" relating to the employment or credentialing of persons because of their delivery of expert testimony in legal proceedings. Specifically, the bill provides as follows:
An individual or entity who threatens to take or takes adverse action against a person in retaliation for that person providing or agreeing to provide expert testimony, or for that person executing an affidavit pursuant to the provisions of P.L.1995, c.139 (C.2A:53A-26 et seq.), which adverse action relates to that person's employment, accreditation, certification, credentialing, or licensure, shall be liable to a civil penalty not to exceed $10,000 and other damages incurred by the person and the party for whom the person was testifying as an expert.
The bill has been noted with alarm by Louise Andrew at the Coalition and Center for Ethical Medical Testimony, but seems to have stirred little attention otherwise.
The bill is vague in many respects, but a few observations can be made about it:
* On its face, it appears intended to torpedo within the bounds of New Jersey any nascent trend toward peer review or self-regulation by which the medical profession might collectively police untruthful or unethical expert testimony. If that interpretation is correct, the amendment likely was meant as a favor to certain sectors of the plaintiff's bar which have crusaded against peer review/disciplinary review of experts' conduct.
* It is potentially broader than that, however. To begin with, although embedded in a medical malpractice reform bill, by its terms it might seem to apply not just to medical experts but to persons who give testimony in any field: falsehood-spinning engineers, truth-shading accountants, deluded economists, conveniently forgetful police-lab forensicists, and errant translators (as well as providers of good testimony in all those fields) might claim benefit from its provisions too (unless a court rules, e.g., that the legislature must have intended but forgotten to include a provision restricting the application to medical experts).
* Nor does it apply only to professional societies. Indeed, it menaces with liability any "individual or entity" who takes "adverse action" relating to an expert's "employment, accreditation, certification, credentialing, or licensure". If an expert makes headlines by testifying on behalf of the fabled "Twinkie Defense", O.J. Simpson's favored DNA theories, or creationist accounts of the origin of the earth, would it be illegal for a future employer to consider that conduct in withholding a job offer? Quite possibly it would.
* "Retaliation" and "adverse action", as employment lawyers know, can be broad concepts. They can include not being offered promotions or perks, being "shunned" by colleagues, being the subject of whispering campaigns, etc. The adverse action need only "relate to" employment or credentialing, raising the possibility that, say, negative job references or letters to credentialing agencies might count as adverse action.
* The potential exposure could in some cases be quite scarifying because of the way the law creates a right to damages on the part of the litigant whose lawyer hired a given expert. If an expert withdraws from a pending case, claiming a threat of retaliation by an employer, and the case is then lost or settled on unfavorable terms, might the litigant have a right to sue the employer for the lost value of the case? Quite possibly.
"This kind of professional self-regulation furthers rather than impedes the cause of justice," wrote Judge Posner in the 1997 Austin case. "More policing of expert testimony is required, not less." In New Jersey, however, it appears the force of the state is going to be brought to bear against those who attempt to resist the advance of unethical expert testimony.
The SEC, reports Prof. Ribstein, is blaming the law's perceived burdens on accountants. AP and the NLJ fill in details about the agency's gestures toward reevaluating Sarbanes-Oxley in the light of widespread complaints, while John Berlau of the Competitive Enterprise Institute sums up some of those complaints (earlier posts).
For 14 years, judges have been attending conferences given by the Bozeman, Mont.-based Foundation for Research on Economics and the Environment, a group which espouses free-market environmentalism but includes a wide range of views in its panels. Now the left-wing Community Rights Counsel has succeeded in driving three federal judges off FREE's board by filing dubious ethics charges against them. Notes the W$J, about FREE's program: "In fact, such seminars are common, and useful. Groups ranging from Ivy League universities to bar associations to the Aspen Institute routinely host them. So do trial lawyers, who then pitch new litigation strategies -- not that Mr. Kendall [Doug Kendall of the CRC] seems concerned about those seminars. Because the sponsors often reimburse judges for their expenses, the U.S. Judicial Conference's Codes of Conduct Committee long ago established guidelines for attendance." Judges take note: the emerging rule seems to be that attending seminars is still going to be fine, so long as the organizers adhere to the correct viewpoints. (Update Jun. 15: ethics charge against judge rejected as unfounded).
Ramesh Ponnuru at NRO thinks Sen. Specter is steering things in the wrong direction.
Texas and Florida, Georgia and South Carolina, aren't the only states to act this year. Reader Mark Arnold writes:
[In March,] the Missouri legislature passed some truly significant tort reform. The bill prohibits introduction in evidence of an apology. More significantly, it caps punitive damages at five times the actual or $500,000, whichever is greater, and eliminates joint and several liability for any defendant not responsible for at least 51% of the damages. It also puts an end to the games plaintiffs used to play to get cases in favored venues like Jackson County and the City of St. Louis.
Blawg Review is a weekly roundup of interesting posts from around the legally inclined blogosphere. It's worth reading every week, and this week's entry (#6, hosted by David Swanner of the South Carolina Trial Law blog) summarizes our story from last week concerning the attorney general of Mississippi and his controversial venture into contingency-fee tax enforcement.
The state-level movement for asbestos-suit reform scored two major victories this month, in Texas and Florida. In Texas, Senate lawmakers adopted a requirement that asbestos and silica suits be backed up in most cases by a doctor's report attesting to a certain actual level of illness or impairment. The deal was sweetened for plaintiffs, however, by a provision suspending time limits for filing suit, and a newly added provision barring personal insurers from dropping coverage or raising rates for persons with asbestos symptoms (the insurers saddled with this new unchosen obligation are, of course, often different companies from the liability insurers that benefit from litigation reduction). Approval by the House and Gov. Rick Perry is considered likely. (Texas Lawyer, Fort Worth Star-Telegram).
In Florida, as part of a burst of action at the close of the legislative session, lawmakers also enacted a medical requirement for asbestos litigants, which Gov. Jeb Bush is expected to sign. Of the rest of the ambitious agenda promoted by reformers in Tallahassee this year (see May 2), the only item to pass was one shielding utilities that provide streetlights from lawsuits. (St. Petersburg Times, Business Insurance).
In Mississippi, a furor has arisen over the latest cozy partnership between state attorneys general and profit-seeking private lawyers, this one involving what can only be called contingency-fee tax collection. Jackson Clarion-Ledger editor Sid Salter sums up the basics:
Democratic Attorney General Jim Hood hired Booneville attorney Joey Langston -- a major campaign financier of both former Democratic Gov. Ronnie Musgrove's and Hood's 2003 campaigns -- as outside counsel to represent the state in negotiations to collect back taxes owed the state by MCI/WorldCom, the homegrown telecommunications giant that collapsed in 2002 after an $11 billion accounting fraud was revealed.
The settlement reached was $100 million, plus negotiated contributions of $2.95 million to a newly formed nonprofit organization called Mississippi Children's Justice Center. Langston got $14 million in legal fees from the deal -- and will donate $1.25 million of that to the new nonprofit agency.
Interestingly, MCI itself hired former Mississippi AG Michael Moore, a Hood ally whose freelance partnership with Dickie Scruggs set the pattern for mutual backscratching between AGs and private lawyers, to represent it in the deal. Republican Gov. Haley Barbour has criticized the proceedings, but was powerless to stop them because of the independence of the AG's position from gubernatorial control. The contemplated establishment of the new nonprofit center means that once again, as in the tobacco round, the AG's office has managed to create a new program with taxpayer money not voted for that purpose by the legislature -- an especially remarkable outcome since, as Salter notes, "the Legislature rejected funding the Justice Center during the 2005 regular session".
AG Hood, meanwhile, is defending the deal and dismissing critics who claim the state could have gotten a better deal from MCI. And the Biloxi Sun-Herald is sifting through some of the many political connections between Hood and attorney Langston, such as, f'rinstance,:
Hood, who has promoted state campaign finance reform, last year issued a warning that he may try to prosecute those who sidestep state campaign finance laws. But a Sun Herald article last year pointed out that Hood's campaign had benefitted, to the tune of $300,000, from some of the same type of donations he was criticizing.
Hood called the process of businesses giving money to PACs and nonprofits, which in turn give the same amounts to certain candidates, "money laundering." But Langston gave $100,000 to the Democratic Attorney Generals Association one day during Hood's '03 campaign, and DAGA gave Hood the money the next day.
For more on the adventures of state AGs, see our regulation through litigation page.
That's Lawgirl's word for the practice among some big law firms of not posting profiles of their young associates for fear they'll be snapped up by recruiters. "Like the witch who imprisoned Rapunzel in a high, inaccessible tower, these Big Firms hope to keep their associates locked away from the prying eyes and grasping hands of more appealing suitors."
Doctors who treat nursing home patients also face the risk of a suit alleging "elder abuse." If the patient's in pain, for example, a doctor who's overly cautious or overly generous about prescribing pain medication could be charged with elder abuse. "Every day," says [internist Steven] Reznick, "we see newspaper or TV ads by plaintiffs' attorneys seeking cases of nursing home neglect or abuse."
Lyle Roberts notes a victory for them:
Fee objectors are becoming a more common feature in securities class action settlements and, in some cases, are getting results. The Elan securities litigation was settled last year for $75 million. ...In its decision (In re Elan Sec. Litig., 2005 WL 911444 (S.D.N.Y. April 20, 2005)), the court reduced the fee award to 12% of the settlement or $9 million [from a requested 20%]. Notably, the court agreed with the fee objectors that the plaintiffs faced only a modest risk of dismissal at the outset of the case and that the plaintiffs' attempt to use the hours worked by non-lead counsel to justify the size of the fee award should be rejected.
The Cincinnati Enquirer reports on a pending lawsuit that may focus attention on mass-tort settlement practices:
Thirty-four Kentuckians who shared in a multimillion-dollar, class-action settlement against the maker of the diet drug fen-phen say their former lawyers deceived them.
The group alleges that the lawyers who handled the settlement in May 2001 didn't tell them that at least $18 million was given to The Kentucky Fund for Healthy Living, a nonprofit corporation chartered and controlled by the lawyers.
Prominent Cincinnati mass-tort lawyer Stanley Chesley, who is named as a defendant in the suit but is not among the lawyers said to control the nonprofit group, called the action a "spite suit" with "no merit". More coverage: Lexington Herald-Leader, Louisville Courier-Journal. Update Mar. 6, 2006: judge resigns amid scandal.
Last Friday, the Second Circuit Court of Appeals threw out a class action against tobacco manufacturers in Simon II Litigation, No. 03-7140 (PDF), and ruled that Eastern District Judge Jack Weinstein had exceeded the scope of federal rules in certifying the class of smokers. (Weinstein, of Agent Orange fame, is notorious for his aggressive use of the class action procedure and consumer protection laws to resolve toxic tort and products liability actions -- see, e.g., Ted's post on overlawyered last Apr. 13 (gun lawsuits), Walter's on Oct. 23 (tobacco-health insurers). Weinstein now has control of the multi-district litigation against Eli Lilly over the anti-psychotic drug Zyprexa.)
A unanimous panel of the 2nd U.S. Circuit Court of Appeals said that Eastern District Judge Jack B. Weinstein had stretched the boundaries of the law by certifying a non-opt-out class of current and former smokers who had been diagnosed with smoking-related diseases.
The class was the first-ever nationwide group of plaintiffs certified against the tobacco industry. . . .
It was also the first time plaintiffs in a class action had sought only punitive damages, deciding to seek compensatory damages at a later date. The 2nd Circuit objected to that approach.
The intention of the suit was to mete out punishment against the tobacco industry in one blow for claims that it had suppressed and misrepresented information about the dangers of smoking dating back to 1953.
Rather than having individual plaintiffs winning and losing disparate verdicts against the industry, the nationwide, non-opt-out suit would, in theory, award punitive damages from a fund based on the severity of a plaintiff's injuries.
Judge Weinstein said he would apply New York state law to the claims and would exclude plaintiffs who had already won or settled claims against the tobacco industry.
The Second Circuit determined that the non-opt-out nature of the suit was not warranted under Rule 23(b)(1)(B) of the Federal Rules of Civil Procedure, since the plaintiffs lacked "evidence indicating either the upper limit or the insufficiency of the posited fund . . . [to] demonstrate that individual plaintiffs would be prejudiced if left to pursue separate actions without having their interests represented in this suit . . . ." (see Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999)).
Also, the court of appeals questioned whether the unique nature of the suit -- determining punitive damages without first determining compensatory damages -- was permissible in light of the U.S. Supreme Court's decision in State Farm v. Campbell (see my discussion last June 15): "In certifying a class that seeks an assessment of punitive damages prior to an actual determination and award of compensatory damages, the district court's Certification Order would fail to ensure that a jury will be able to assess an award that, in the first instance, will bear a sufficient nexus to the actual and potential harm to the plaintiff class, and that will be reasonable and proportionate to those harms."
It sounds as if many Michigan malpractice lawyers haven't been doing so, with respect to the use of out-of-state notaries in executing certificates of merit to support their cases, and if the MichMedMal blogger (Apr. 21, citing this PDF decision) is correct in his/her estimation, the consequences could be drastic in the extreme for many of the lawyers' clients, who could be thrown out of court with prejudice for their lawyers' mistakes. If so, how many of them will have valid causes of action for legal malpractice? More: Brian Dickerson of the Detroit Free Press discusses the case and notes that organized defense lawyers in Michigan, as well as those for plaintiffs, are seeking reversal. Update Jul. 17: court has vacated its ruling (see MMM, Jun. 3).
With Justice Sandra Day O'Connor casting the deciding vote, the Supreme Court this spring decided that Title IX's "implied private right of action", plucked from thin air by earlier courts to provide a basis for private sex discrimination suits, should be extended (again from thin air) to create a new right to sue over being retaliated against by an employer for backing claims of sex bias. At the Ex Post blog (Columbia Federalist Society), posters Erasmus and Publius discuss whether this portends a revitalization of the implied-rights device, which has been in relative disfavor at the Court for a while. At ACSBlog, predictably, the view of the new decision is rather more enthusiastic.
The litigation lobby frequently asserts that the relatively affordable status of malpractice insurance in California should be credited not to MICRA, the state's pioneering liability-limiting law, but instead to the insurance-company-bashing Proposition 103. The AMA has already addressed this question (see p. 48 of its position paper, PDF; also Feb. 24) and now Californians Allied for Patient Protection, a pro-MICRA group, is out with a more thorough debunking of the claim (PDF)(news release)(another recent CAPP report on MICRA, also PDF). California Physician has a handy FAQ on the issue.
Democrats and some Republicans in the Michigan legislature are lending support to a trial-lawyer-backed push to eliminate an Engler-era product liability provision unusually favorable toward pharmaceutical companies. (The existing law shields drugmakers from being sued over FDA-approved actions unless they've misrepresented facts to the agency; although trial lawyers do typically claim after drug recalls that drugmakers engaged in such misrepresentations, they don't look kindly on a law which puts them to the proof of such allegations). The bill being filed by Democratic lawmakers would eliminate the safe harbor retroactively, thus imposing liability in many past cases where the current state of the law imposes none. I wrote on retroactivity in the law some years back.
Sometimes I'm challenged when I suggest that Madison County, Illinois is a "judicial hellhole" that treats corporate defendants differently than the vast majority of American court systems. It's worth reading the Seventh Circuit decision of Grinnell Select Ins. Co. v. Martha Baker (Apr. 5, 2004). There, the court was asked to apply Illinois law to a diversity case involving the interpretation of the "anti-stacking" provision of an insurance contract. Though the policy language was clear, the task was made trickier because the Fifth District Appellate Court of Illinois--the appellate court for Madison County and much of southern Illinois--had issued two decisions that contradicted Illinois Supreme Court decisions in an effort to read anti-stacking provisions out of the policy. The "Fifth District stands alone among the 50 state judicial systems," and the Seventh Circuit, predicting that the Illinois Supreme Court would uphold the provisions, applied Erie and did the same. But had the case not been removed to federal court, the result might well have been different, if the Illinois Supreme Court failed to step in.
Following in Ted's footsteps of dissecting misleading statistics in the medical malpractice debate (see May 2, Apr. 3, Apr. 1, Mar. 25, and Mar. 10; see also our editor's dismantling of The New York Times's med-mal article Feb. 23 and Feb. 24, and the analysis we each gave to Bob Herbert's claims in the Times last Jun. 22 (Copland), Jun. 22 (Olson), and Jun. 23 (Frank)), I spent some time this week going through Public Citizen's new report, "Medical Malpractice Payout Trends 1991-2004: Evidence Shows Lawsuits Haven't Caused Doctors' Insurance Woes" (PDF).
The "report" is, all too typically for Public Citizen, an exercise in obfuscation. Figures 3 and 4 of the report (pp. 3-4) suggest that medical malpractice payouts have not increased much in the last thirteen years, "adjusted for inflation." But what Public Citizen doesn't tell you (apart from a small note at the end of the report, unreferenced in the body of the report or the graphs) is that they aren't really adjusting for what we'd commonly call inflation -- i.e., the consumer price index -- but rather for a measure of health care inflation, which is much higher than overall inflation throughout the period. Because I know something about inflation rates and compounding, the deception was obvious to me, but it probably wouldn't be to the average journalist or casual reader.
Apart from being overtly misleading, Public Citizen's use of medical care inflation to discount malpractice damage awards makes little sense. Damage awards are estimates of the economic (e.g., actual treatments, lost wages) and noneconomic costs (e.g., pain and suffering) of injury. Except for the actual costs of medical treatment -- which aren't affected by caps on noneconomic damages, such as those in California's MICRA and the president's medical malpractice proposal -- it makes no sense whatsoever to "adjust" the growth in damage awards by a health care inflation number rather than a measure reflecting overall inflation.
Moreover, Public Citizen's inflation adjustment makes their analysis circular. Critics of our current medical malpractice system, such as myself, contend not only that high malpractice payouts reduce access to care but also that such payouts increase health costs, mostly by encouraging "defensive medicine." Extrapolating from Kessler and McClellan's study, the Department of Health and Human Services estimates such defensive medicine costs as between $60 and 108 billion per year (p. 7). It makes no sense to say that we should discount the growth in jury awards by the cost inflation those jury awards have at least in part encouraged.
Figure 5 of the report purports to show a decline in the number of payouts at or above $1 million, but employs the same sleight of hand by using medical care inflation numbers. Jury Verdict Research's most recent figures on medical malpractice jury awards show that the median verdict for med-mal cases rose sharply from $473,000 in 1996 to $1,000,000 in 2000, and has since plateaued at or above $1 million. It is of course very true that most cases settle and do not go to trial; but it's also axiomatic that verdict levels, and the probability of an unfavorable verdict, affect expected verdict levels -- and thus determine settlement values. (And I note that JVR's analysis also shows that the odds of a plaintiff winning in med-mal cases rose precipitously from 29% to 42% -- a 45% jump -- from 1996 to 2002.) JVR's figures probably understate actual escalation in the legal costs of medical malpractice over the period, because they represent median rather than mean verdicts: the cost of writing an insurance policy is the discounted expected value of future claims, so huge outlier verdicts absolutely drive up malpractice insurance costs.
Others of Public Citizen's statistics may well be accurate but don't tell us much. E.g., that the number of malpractice payouts (Figures 1 and 2) hasn't grown isn't really important. What matters is the mean payout per doctor. Public Citizen's own numbers show that overall payouts have doubled in nominal terms (and risen ~45% in real terms) over the period studied, which is striking if Public Citizen is correct that the number of payouts is roughly flat. Similarly, that the percentage of OB or surgical payouts may not have changed much (Figure 8), in terms of the number of payments, doesn't matter. Again, what matters is the mean payout per doctor, which Public Citizen doesn't mention. It's also not very interesting, or surprising, that injuries categorized as "more severe" receive the lion's share of awards (Figures 6 and 7). Nobody claims that the medical malpractice crisis is driven primarily by the claims of individuals without an actual injury (unlike, say, asbestos); the question is whether those awards are rationally related to doctor error and whether on average they're reasonable, and as Ted points out extensively in his recent post, there's lots of evidence to suggest that they're not.
How else does Public Citizen's report mislead? Well, Figure 10 combines what look to be really obvious avoidable lapses (the text refers to "such things as leaving a surgical instrument behind or operating on the wrong body part") with others that are much more debateable (such as "wrong treatment" and "failure to protect against infection"). Without knowing the breakdown, we can't know how many of these errors are of the more extreme type alluded to in the text -- it's possible only a tiny handful of these cases actually involve leaving behind a surgical instrument or operating on the wrong body part. Furthermore, these "easy cases," even by Public Citizen's definition, amount to only ~600 per year, less than 5% of the overall malpractice payments (over 14,000 in 2004).
Finally, the report repeats as novel the commonly known fact that a small percentage of doctors are responsible for the lion's share of tort awards. Such a reality doesn't tell us much. As Ted ably pointed out in his first response to Michael Saks, simple random chance insures that some fraction of doctors would be subject to many repeat suits, even assuming their performance was identical to their peers. Moreover, because not all doctors are in equally risky fields -- as Ted notes in his more recent post, "a brain surgeon is more likely to cause an injury than a dermatologist" -- we'd expect that some doctors, in high-risk fields, would be much more subject to being sued. I note that EVERY doctor singled out in Public Citizen's report as an example of high dollar-award, "repeat offender" status is a surgeon or obstetrician (see pp. 11-12).
Since many studies show that medical malpractice payouts are not accurate predictors of doctor error (see points 2-4 of Ted's post earlier this week), there's not a lot of confidence to think that repeat suits and payouts by a doctor are, in themselves, evidence of doctor incompetence. Rather, they're pretty good evidence that the doctor is in a high-risk field and/or is simply unlucky, which is not at all the same thing. That's not to say that there aren't doctors who are bad; of course there are. And it's certainly possible that doctors and hospitals could do a better job policing themselves. But Public Citizen's evidence doesn't come close to making that case; and it's very likely that the current state of malpractice litigation frustrates rather than facilitates better doctor and hospital self-policing.
It's simply the case that losses paid out per doctor rose much faster than premiums paid per doctor (1288% vs. 312%), or medical care inflation (480%), from 1975-2001 (see this graph). After 2001, when med-mal insurers were exiting the market in response to this reality, insurance regulators permitted substantial premium price increases that began to correct for these imbalances (though far from fully -- really returning medical malpractice paid-loss ratios to 1995 levels, which were still 150% higher than they were in 1975). It is an unavoidable fact that the exceptional growth in losses paid per doctor over time explains medical malpractice premium growth, no matter how much Public Citizen and its ilk try to obscure the issue.
Dan Henninger in the WSJ/Opinion Journal:
The day the CDC released its [now-corrected] killer-obesity study, George Bush's HHS Secretary, Tommy Thompson, said: "We're just too darn fat, ladies and gentlemen, and we're going to do something about it." He added elsewhere: "It's a difficult fight but we all have to partake in it." We all?
Josh Gerstein of the New York Sun has the story of the student kicked out of Le Moyne College of Syracuse for his politically incorrect views. Though I'm certainly not sympathetic to the intrusions of political-correctness thought police, I'd have to agree with Eugene Volokh, quoted in the article, that there's no First Amendment case here for this small Jesuit college.
And $40 million in damages for not being allowed to be a teacher? Perhaps I should change professions...
That was the number of amendments offered as part of a trial-lawyer-led filibuster against litigation reform in South Carolina. It didn't work, though, and a package of reforms passed recently with strong support from the legislature and Gov. Mark Sanford. Cam Crawford, executive director of South Carolinians for Tort Reform, tells the story.
The cost of insuring against it has leapt sevenfold in just over a decade: "The average long term care GL/PL cost per annual occupied skilled nursing bed has increased from $310 in 1992 to $2,290 in 2003," adding approximately $6.27 a day to the cost of patient care. That's from the latest annual survey (PDF) prepared by insurance consultants AON for the American Health Care Association, which comments. Between 1992 and 2003 the rate of claim-filing rose from 4.8 claims per hundred beds to 15.3 claims, while the average size of a claim more than doubled from $65,000 to nearly $150,000. And while a leveling off or drop in costs is anticipated in some major states like Florida and Texas that have recently enacted limits on liability, the numbers are still rising fast elsewhere. Earlier surveys: 2003, 2002, both PDF. More on nursing home liability: American Medical Directors Association, Jul. 2003; Overlawyered, here and here and here and here.
The blogosphere is talking about Outback Steakhouse CFO Bob Merritt's resignation over "the increasingly negative regulatory environment" (Smith; Bainbridge). There's plenty to complain about in the new regulatory regime, but I have to disagree with Professor Bainbridge that new lease accounting rules issued by the SEC in February are appropriately in that category. An accounting rule, such as the old lease accounting rules, whereby a company can take steps that make it unambiguously worse off economically (because of transactions costs) but improve the appearance of its balance sheet is exactly the type of accounting rule that policymakers want to discourage. There's no reason to establish incentives to engage in such shell games. There were good discussions of these issues a few years ago in Forbes. (Elizabeth McDonald, "False Front", Forbes, Oct. 14, 2002; Seth Lubove and Elizabeth MacDonald, "Debt? Who. Me?", Forbes, Feb. 18, 2002). Companies and executives that engaged in "synthetic leases" weren't dishonest, just taking advantage of the rules, but, as in tort reform, one wants to abolish rules that encourage inefficient behavior. One sympathizes with Merritt's complaint "of the growing presumption that all business people are dishonest" in press coverage of the resulting restatements.
Ryan Sager in the New York Post (which now requires registration) has more on how longtime activists in trial lawyer causes reinvented themselves as supposedly neutral campaign umpire/watchdogs during last year's Maag-Karmeier Illinois Supreme Court race, with help from some credulous media. Allen Adomite of the Illinois Civil Justice League comments as well. See Apr. 22 (liberal foundation assistance in the caper) as well as our many posts about the Maag-Karmeier race.
Reports the Philadelphia Business Journal:
Pennsylvania's 182 general acute-care hospitals spent $636 million -- which equates to 2.67 percent of the total statewide net patient revenue -- on medical malpractice expenses in fiscal 2004, according to a report released Monday by the Pennsylvania Health Care Cost Containment Council [an independent state agency].
The numbers do not include premiums paid by independently practicing doctors or by other professionals such as nurse-midwives, so the true cost of malpractice insurance in the state is higher than the $636 million figure, probably considerably so.
The report also finds a dramatic gap in the cost level between hospitals located in Philadelphia, which on average spent 3.94 percent of their revenue on insurance, and those at the other end of the state in Pittsburgh, which paid a modest 1.60 percent. (Those in the Philadelphia suburbs averaged 3.29 percent). The long-honored conventional wisdom, of course, is that Pittsburgh has a far less litigious legal culture than Philadelphia. The cost gap between cities thus makes perfect sense if you assume that insurance rates bear a logical relation to expected future payouts and legal costs. If, on the other hand, you accept the arguments of some in the trial bar that insurance rates are driven by everything other than expected future costs, you have to wonder why Pittsburgh hospitals are getting off so easy. Do the famed (and much mythologized) "bad investments" of insurance companies not affect their rates too?
On April 3, I wrote a 560-word piece discussing the implication of some statistics cited in a Michael Saks op-ed, and why they were misleading. On April 11, Professor Saks asked for the opportunity to reply, and sent me a 2000+ word rebuttal on April 16, which is reprinted in full after the jump. I'm not going to address the condescending personal remarks. OK, I'll address just one: not that it's relevant, but, yes, I know who Richard Posner is, what with me being one of his former research assistants. I would like to discuss some of the substantive points briefly, though at more length than my original post. I don't doubt that Saks is already familiar with the literature I cite.
1. Saks can claim that I "do not challenge" his main conclusion that the malpractice crisis is caused by doctors only by ignoring everything I've written on the subject in the last two years. I don't believe the law of waiver applies when, while writing for a blog with regular readers, I fail to repeat every argument I've ever made when I write a post addressing a handful of particular details in a particular op-ed.
2. Saks's rebuttal and op-ed both rely heavily on the Harvard Medical Practice Study, a 1991 study of 1984 New York state hospital case records. The Harvard Medical Practice Study has been criticized elsewhere for substantially exaggerating the number and effect of medical errors, and I won't repeat those criticisms, but note that they eviscerate the premise of almost every argument Saks makes. Dr. Anderson's critique is worth reading on its own, and worth remembering next time you hear the claim that "medical errors cause 98,000 deaths." See also Rodney A. Hayward & Timothy P. Hofer, "Estimating Hospital Deaths Due to Medical Errors: Preventability Is in the Eye of the Reviewer," 286 JAMA 415 (2001); Clement J. McDonald et al., "Deaths Due to Medical Errors are Exaggerated in Institute of Medicine Report," 284 JAMA 93 (2000).
3. If Saks is going to rely on the Harvard Study, he has to take the bad with the good. The Harvard Study found that, holding severity of injury constant, the litigation system was just as likely to award damages in a case where no medical malpractice has taken place as one where medical malpractice has taken place; indeed, the sued non-negligent doctors paid more on average to injured patients than the sued negligent doctors, and the majority of patients receiving compensation weren't injured by negligence. See Brennan et al., "Relation between Negligent Adverse Events and the Outcomes of Medical-Malpractice Litigation," 335 NEJM 1963 (Dec. 26, 1996).
4. Furthermore, this omitted fact substantially weakens Saks's premise that the current malpractice litigation system serves as an effective deterrent. For litigation to be a deterrent, it has to have more effect on doctors who commit malpractice than those who do not; because of the utter randomness of litigation results, there's little evidence this is true in the current system. Mello and Brennan, "Deterrence of medical errors: theory and evidence for malpractice reform," 80 Tex. L. Rev. 1595 (2002). The only thing the current system provides is (1) a wealth transfer from doctors and patients to lawyers and (2) a random lottery effect for patients who have adverse results that may or may not be caused by malpractice. The main thing being deterred is the actual practice of medicine.
5. Even while ignoring this finding of the Harvard Study, Saks unironically cites numbers from that study that say that 83% of malpractice suits filed are meritless. I would say that this supports my claim that lawyers do a poor job of screening meritless cases; Saks argues that this refutes it. I'm confident in agreeing to disagree here over the meaning of "poor job." Regardless, I stand by my criticism that the "29 times more likely" statistic is a misleading way to communicate how well the tort system screens cases: this sort of false positive conjecture is criticized as innumeracy when journalists do it, and it's not unreasonable to hold a professor to a higher standard. I picked round numbers to illustrate the basic statistical principle that "29 times more likely" was not an impressive statistic when one was talking about something as rare as medical malpractice. (Professor Volokh did something similar two weeks later in talking about rape accusations.) Professor Saks criticizes at length the fact that the plainly hypothetical example "ma[de] it all up out of thin air," but fails to explain why it makes a jot of difference to my argument that I used obviously fictional numbers rather than fictional numbers masquerading as definitive ones.
6. Speaking of ignoring findings from the Harvard Study, it's an entertaining irony to note that the Harvard Study recommended placing limits on pain-and-suffering damages, the very proposal Saks fulminates against in his op-ed.
7. Saks's original op-ed said that doctors had no right to complain about high malpractice insurance costs because they could pass those costs along to their patients. I noted that this contradicts his claims that malpractice litigation serves as a deterrent. Saks simply repeats the contradiction. He can't have it both ways: either doctors suffer from the expense of malpractice insurance, or they do not, and if they do not, then their indifference means that there is no deterrent effect from higher malpractice insurance rates. As Saks finally acknowledges in his point #2, higher malpractice insurance rates reduce doctors' profits. Doctors thus have reason to complain about the high malpractice insurance rates caused by the inefficient litigation system, and Saks's op-ed statement to the contrary is too strong—which was exactly the point I made in my original post. His response defends a different argument than the one he made.
8. I do not "question the finding that a proportionately small number of doctors is responsible for a proportionately large number of injuries, suits and damages." I question only the "finding" with respect to injuries, for which Saks cites no evidence (though it wouldn't surprise me if it were trivially true: a brain surgeon is more likely to cause an injury than a dermatologist). With respect to suits and damages, I don't disagree with the finding, but I question the relevance of that finding, given the randomness of the litigation system and the different risk profiles of different practices. I don't understand why Saks is throwing the Gittler-Bovbjerg study at me; my original post linked to my Jan. 6 discussion of that study, which he doesn't address, and which I won't repeat here. Once again, Saks is talking past my criticism.
9. I questioned Saks's claims that "research finds that only 10 to 20 cents are paid on each dollar of economic loss." In response, Saks points me to Frank Sloan's work. But in Sloan's Suing for Medical Malpractice, Sloan found that plaintiffs who went to trial in his study set of malpractice cases, in the words of Neil Vidmar, "ultimately receiv[ed] 22 percent more than their estimated economic losses." I would further submit that Sloan's analysis overestimates economic losses caused by malpractice, such that the real percentage is actually higher, but that's an issue for another day.
Following major victories for lawsuit reform efforts in Georgia and South Carolina this year, attention has shifted to Florida, where the legislature's session is scheduled to last only through the end of this week. Governor Jeb Bush has proposed an ambitious package of reforms that includes protection for defendants from some premises-liability and negligent-security suits, a defense for retailers from being named in certain product liability suits, and a measure protecting owners of cars from being sued over some accidents that other persons get into while driving their vehicles. The Miami Daily Business Review covered the controversy recently as well as earlier in the year. The St. Petersburg Times reports that trial lawyers have succeeded in roping in prosecuting attorneys to lobby in Tallahassee (no doubt without expending any public funds) against granting business any broad immunity from negligent-security suits over depredations committed by criminals in parking lots and elsewhere on their premises.
The business community in Florida, often weak in the past, has been pursuing a variety of different approaches to the issue. Associated Industries of Florida is backing the newly formed Florida Coalition for Legal Reform, which favors a push for an ambitious omnibus bill addressing many issues, while the state's Chamber of Commerce is directing its efforts through the Florida Justice Reform Institute, also new, which is more geared toward a long-term shift in climate. Business alarm over the state of Florida's legal system was apparently touched off by two slip-and-fall cases that reached the state's highest court, both involving banana peels (although I can think of a few other cases that might have provoked justified alarm). See also Apr. 21 (teaching hospitals), Apr. 29 (asbestos).