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September 22, 2004

In defense of caps

By Ted Frank

With this post, I state part of the case for the Bush proposal, and address Dr. Chusid's criticisms of it. While Dr. Chusid states that he agrees with me that medical malpractice reform is a serious issue, he cites a number of statistics in opposition to caps that serve, perhaps inadvertently, to underestimate the problem.

The centerpiece of the Bush plan is caps on non-economic damages. Dr. Chusid raises a number of objections to caps. But some of these objections--a shift of power from an unelected jury to the elected legislature; the fact that caps would not have a bearing in most cases; the injury to federalism--can only be taken so seriously. After all, as Dr. Chusid explains, part of the Kerry plan is to eliminate punitive damages for some categories of medical malpractice. To the extent that proposal is sincere, it is nothing more than an extreme cap of zero, subject to exactly the same objections raised against the Bush plan. (For more on the federalism question, which is perhaps the best argument against the Bush reform plan, though one equally applicable to Kerry's plan, see the analogous discussion on gun liability suits.) [Correction, 9/23: Bush plan not that injurious to federalism.]

Caps obviously can't be dismissed out of hand as a policy-making tool, then. That they would only affect extreme cases is a feature, not a bug. It is extreme cases and arbitrary awards in the millions that make it difficult for insurance companies to judge risk and make up a substantial portion of insurance expenses. It is extreme cases and arbitrary awards in the millions that encourage attorneys to push questionable scientific evidence in longshot cases in the hopes of winning a jackpot by virtue of an outlier judge and jury (or exceptional argument or exceptionally unsympathetic defendant). It is extreme cases and arbitrary awards in the millions that make doctors practice defensive medicine--such as unnecessary C-sections and unnecessary CT scans that may be counterproductive. It only takes a handful of such awards to have gigantic ripple effects throughout the system. Much of the medical malpractice reform debate comes down to this: is making a few dozen jurors feel better about awarding jackpots to a handful of grievously injured patients (who may or may not have actually suffered malpractice, as opposed to simple bad luck) worth the drastic impact it has on the quality and cost of medical care for hundreds of millions of people? Even if one thinks that the families of the injured are somehow entitled to millions of dollars from the rest of us, isn't there a better way to administer such awards (say, through, no-fault insurance (though that may have problems), a sort of social insurance system like the 9/11 Victims' Compensation Fund--or, heaven forfend, through privately purchased insurance) then through a system where over half the costs goes to the lawyers on both sides?

Dr. Chusid repeats a mistaken assertion of the Democrats when he says "The CBO also found that caps would only reduce insurance premiums by less than half of one percent." In fact, what the CBO said was that

A 2003 study that examined state data from 1993 to 2002 found that two restrictions--a cap on noneconomic damages and a ban on punitive damages--would together reduce premiums by more than one-third (all other things being equal).

(That study by Kenneth Thorpe--which, in its final version, appears to have scaled back its estimates--can be found here.) CBO also estimated that H.R. 5, the HEALTH Act of 2003--which passed the House, and was killed by the Senate (Kerry not voting, and Edwards voting no)--"would lower premiums nationwide by an average of 25 percent to 30 percent from the levels likely to occur under current law." According to HHS, "Malpractice reforms in the 1980s led to a 34% decline in malpractice premiums in those states that enacted [caps] compared with states that did not enact reforms." Indeed, the notoriously plaintiff- and lawyer-friendly state of California--which somehow implemented damages caps--has substantially lower insurance premiums than states without caps. Numbers like this are real empirical results, rather than a panel of experts from across the ideological spectrum scoring proposals like an East German figure-skating judge and awarding Kerry a 3.8 to Bush's 3.7. (More overwhelming evidence on the savings of caps: POL, Aug. 25; Jul. 13; May 19; May 19.)

What the CBO says is that, assuming medical malpractice expenses are 2%, reducing those expenses 25% will, as a matter of simple arithmetic, reduce total health care expenses by 0.5%. But, as Dr. Chusid acknowledges, that 2% assumption for medical malpractice expense is a great underestimate. There's more than just insurance premiums: there's the billions spent on inefficient defensive medicine, on hospital in-house lawyers, on time doctors spend with lawyers instead of with patients, on time doctors spend papering the record to protect themselves in event of suit, and on self-insurance--many hospitals don't use a middleman insurance company. And for a number of disciplines, the malpractice insurance rate is unquestionably higher than 2%--the average OB/GYN pays a quarter of her net income in premiums. Nor is this a problem, as sometimes expressed by some trial lawyer defenders, of some small percentage of doctors accounting for the majority of malpractice: in a given year, a sixth of America's doctors (and half of its neurosurgeons) are faced with a malpractice claim. (Similarly, the oft-cited 1999 Institute of Medicine study attributing tens of thousands of deaths to hospital errors is only relevant to malpractice concerns if, as Dr. Chusid implicitly acknowledges, one assumes a sort of strict liability for poor results.)

Dr. Chusid expresses concern that disparate "treatment for non-economic damages trivializes such damages." But that's just an inherent problem of quantifying the non-quantifiable. There's no market for suffering brain injuries, for blindness, for loss of mobility, for the loss of a child, for countless other tragedies of varying degrees of unbearability. Juries are essentially picking numbers out of thin air (and often on the basis of sympathy rather than on a reasonable finding of malpractice); even plaintiffs who have won jackpot awards will frequently say that they feel undercompensated. In a world with meaningful caps, one will undoubtably be able to point to anecdotes here or there where the result seems unfair. (Yet, surprisingly, though caps are in place in states throughout the country, and a powerful lobby and compliant media with the motive to publicize such cases, we don't hear much about them.) But the debate should consider both the costs and benefits: do we really want to drive many doctors out of practice for the sake of this handful of cases? Why is a cap that might limit a particular individual's recovery (but developed through the give and take of the legislative process) more "unjust" than the status quo, where vagaries of the happenstance of random judge and jury selection (and the happenstance of the performance of the doctor on the witness stand) that can result in wildly varying results for similar injuries. For example, Jennifer Campbell's brain damage at birth resulted in $4.25 million (before paying her attorney), but the family of Bailey Griffin, with similar injuries in the same state, won $23.3 million. If even the clients of the silver-tongued John Edwards can't get consistent results, why do we think this random lottery is worth the costs of the current system?

Dr. Chusid is generous to Senator Edwards when he defends the attorney of being guilty of nothing more than lack of prescience when he transferred millions of dollars from the North Carolina health care system into his pocket. But Edwards today continues to insist that his cerebral palsy cases were the result of failure to perform C-sections (even as evidence mounts convincingly that C-sections don't reduce the risk). Edwards's opposition to the creation of a no-fault insurance fund for cerebral palsy victims shows, perhaps, that the desire to fight for the little guy was at least in part self-motivated.

Kerry's plan is vague, so it's hard to gauge what the actual effects will be. But as I will discuss in my next post, it seems to be an attempt to blunt real reform such as caps, rather than improve the system. In many ways, it may well make matters worse. This is why Kerry's record on other tort reform issues is relevant. I certainly welcome evidence to the contrary that Kerry has a historic inclination to meaningfully buck the plaintiffs' lobby. Other than Kerry's vote to override President Clinton's veto of the Private Securities Litigation Reform Act of 1995 (of which more, see Professor Bainbridge), I'm not aware of it. The drain on the economy by the plaintiffs' bar and lobby is a real and serious problem; one is hard-pressed to be optimistic that a senator who has sided with that lobby for twenty years, and then went on to choose the most prominent spokesperson for that lobby as his running mate, is going to change his spots when it comes to medical malpractice reform. This isn't a "preconception," it's an evaluation of the evidence.

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Medicine and Law



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