In the movie "Hot Coffee," Susan Saladoff complains that grievously injured medical malpractice victims who cannot recover their full measure of economic damages result in a subsidy from taxpayers (who end up picking up the bill) to defendants. One can question whether the defendants in the case she singled out were guilty of anything more than being blamed for a bad medical result, and one can complain that she conflates the issue of amorphous noneconomic damages with the particular potential injustice of capped economic damages, but she is right that caps for economic damages are a bad idea.
But it's not the case that trial lawyers really care so much about the impact on taxpayers. North Carolina law permits the state to recoup Medicaid expenses from the assets of patients helped, but has an exception for noneconomic damages recovered. So cases don't go to trial; instead the parties, with a nudge and a wink, carve the third-party taxpayer out of the recovery by characterizing the full settlement as non-economic damages.
To what extent can medical malpractice settlements evade the Medicaid clawbacks through the legal fiction that the settlement reflects solely pain & suffering damages? So asks the case of Delia v. E.M.A., argued earlier this week. [McClatchey]
The Obama administration has sided with trial lawyers over taxpayers, flipping what the prior federal position was. Counterintuitively, so did a brief for the Federation of Defense and Corporate Counsel. Game theory tells us why: the Medicaid clawback makes going to trial less valuable for plaintiffs, and creates settlement pressure to avoid the clawback, and defendants can split the benefit of freezing out taxpayers with the plaintiffs.
Note that such elastic settlements are only possible in a jurisdiction with uncapped noneconomic damages.
At argument, the Supreme Court seemed skeptical of North Carolina's position, though that likely reflected the arbitrary particularities of the North Carolina statute, which irrebuttably defines the amount of any settlement—or jury verdict—attributable to medical expenses or noneconomic damages. On the other hand, the Court also expressed skepticism of the respondents' position that the state had to make an individualized assessment of every case.