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‹ FEATURED DISCUSSION

September 22, 2004

We Can Do Better Than Caps

By Ron Chusid

In considering caps on malpractice settlements we must consider questions such as whether they really affect malpractice insurance premiums, whether they reduce the cost of health care for the general public, whether they affect the filing of frivolous suits, whether they reduce the prevalence of defensive medicine, and whether they have any deleterious consequences which might outweigh possible benefits At most Ted provides a weak case that maybe caps will lower malpractice premiums slightly, with caps failing miserably on all other measures.

Ted starts by claiming that the statistics I cited about malpractice act to underestimate the problem. The statistics I presented do not reflect upon the seriousness of the crisis unless a campaign wants to use scare tactics to make problem appear even more serious than it actually is. Statistics used in opposition to the efficacy of caps are not a measure of the seriousness of the malpractice problem. Instead the statistics provide useful information about the malpractice problem which help evaluate possible solutions, and which place doubt on the ability of caps to be very beneficial. Solutions based upon mistaken assumptions about malpractice are likely to be faulty. To offer a solution for malpractice is not enough--any solutions must be efficacious and without undesirable side effects. For those of us in the medical profession, the caution that above all we must do no harm applies both to our practice of medicine and to the public policy positions we can endorse.

The elimination of most punitive awards under Kerry's plan is quite different from caps when you understand the principles guiding Kerry's opposition to caps. Kerry supports elimination of most punitive awards, which are to punish the doctor on top of seeking whatever awards are deemed justified based upon the injuries. Abolishing most punitive awards does not compromise Kerry's objections to limiting the rights of those who have truly been injured. Punitive awards are not required for patients to receive fair compensation for damages, especially in states such as Georgia where portions of punitive awards go to the state.

It is conceivable that abuses of the system with unjustifiably high awards will promote the practice of defensive medicine, although objective attempts to quantify this have failed to provide evidence that this amounts to a significant amount of health care dollars. During the years I've been in practice there has been a significant decrease in the urgency to perform Caesarian sections. The philosophy of "once a C-section always a C-section" mentioned in one of Ted's links was the prevailing philosophy in the past, independent of malpractice fears. This philosophy has been dying out despite the increased fear of malpractice. Picking an isolated example to the contrary does not change the overall trend.

Even if true that cases with unjustified awards, which Ted acknowledges are outliers, increase the practice of defensive medicine (and available evidence shows this as a very minor part of overall health care costs) the use of outliers would be poor justification for arbitrarily restricting the rights of every person who has been injured. There are much fairer solutions available. The legal system, to some degree, has reduced the problems of extreme settlements as they are frequently reversed on appeal. If solution of this problem were the real goal, additional solutions could surely be devised within the legal profession. There are additional solutions possible within the medical profession. For example, practice parameters utilizing principles of evidence based medicine could define both medially and medical-legally when CT scans or Caesarian sections are indicated. Under John Kerry's proposals for pre-trial review, if the only argument against a physician is failure to do a Caesarian section in cases where it was not required by established practice protocols, the case might not even make it to trial, reducing the drive to perform unnecessary tests or procedures.

Ted provides alternatives to the legal system for providing compensation to victims, despite exaggerating opposition to an arbitrary cap of $250.000 to support of mufti-million dollar settlements. I do not find it reasonable to limit compensation to victims of true negligence to those who have purchased insurance for this purpose, but other possibilities are open to consideration. I've wondered myself if systems analogous to no-fault insurance could partially replace the current malpractice system. Such plans would undeniably have problems as Ted notes, but it is conceivable that a system with problems could wind up being preferable to our current system that we both would agree has many flaws.

Replacing the current system to compensate victims is an interesting subject, and I would be interested in hearing Ted's views on the possibility of using such systems if he should desire to pursue this further. However, this intellectual exercise is irrelevant to his current argument. Current proposals containing caps, such as those supported by President Bush, do not include any such provisions. In the absence of containing a mechanism to protect the rights of those truly injured, my previously stated qualms about arbitrarily capping compensation for injuries such as loss of vision or loss of a child where the loss is primarily non-economic remain unanswered. Ted agues against even the validity of such damages. I would hope that even as physicians object to the current problems in malpractice, we have not allowed this to destroy all compassion for those who have truly suffered such losses. This illustrates a true difference in beliefs between physicians supporting John Kerry and the positions of George Bush. While we see many problems in malpractice, including the need to lower premiums and reduce the risk of suits when there has been no negligence, we also respect the rights of those who have suffered injuries to obtain fair compensation.

Previously Ted incorrectly claimed that I was arguing that malpractice is not a significant issue. While I did not take such an extreme and absurd position, here we see Ted (with views reflected in George Bush's proposals) taking the view on the opposite extreme as he denies the validity of damages I have discussed for problems such as loss of vision or death of a child. This would replace our system with one more analogous to what exists in veterinary medicine, where the death of a pet might only be compensated by the monetary value of the animal. Children are not dogs or cats, and the negligent death of a child would be a far greater loss. This desire to reduce the areas that are open to compensation is particularly worrisome as this philosophy is seen throughout George Bush's policies which would greatly reduce liability for negligence in areas beyond medical malpractice. The denial of compensation for such injuries is a serious consequence of accepting George Bush's views on tort reform which leads us to look for other solutions, especially in light of the limited efficacy of caps.

Ted is incorrect when he describes my quotation of CBO figures as a "mistaken assumption." As I noted he was doing in my previous entry, Ted is again comparing apples and oranges when he misquotes the data and my arguments. Ted is mixing up statements made about health insurance premiums with malpractice insurance premiums. George Bush is promoting caps as his primary mechanism to reduce health care costs. Therefore it is significant to note that the CBO found that Bush's proposals would only reduce such health insurance premiums by less than half of one percent. This distinction is also clear in the statement of the Democratic Policy Committee which he links to.

Ted again confuses apples and oranges when he discusses the estimate that malpractice only accounts for 2% of health care costs. Nobody is claiming that this number in any way corresponds to the percentage of income a physician pays for malpractice insurance, as Ted later cited these numbers. In reviewing studies on the impact of malpractice on medical costs, as well as the cost of defensive medicine, I agree that this 2% estimate might be lower than the true cost. However, the types of expenses Ted mentions have already been considered, and a more exact figure would not change the argument. Even if the exact figures were as much as double the CBO's estimates (and it is unlikely they are off by that much) the fact remains that lowering malpractice costs would have minimal impact upon the health care expenses of the general population or of employers in an era when premiums are rising by double digits annually.

The lack of savings from caps was also found in the nonpartisan analysis from Annenberg Political Fact Check, which concluded that "both the General Accounting Office and the Congressional Budget Office criticize the 1996 study the Bush administration uses as their main support. These nonpartisan agencies suggest savings – if any – would be relatively small." Addressing the cost of defensive medicine, they also report "A 1990 study by the Harvard University School of Public Health “did not find a strong relationship between the threat of litigation and medical costs,” CBO said. And a 1999 study in the Journal of Health Economics found only tiny savings – less than three-tenths of one percent – when studying the cost of Caesarian sections in states with limits on lawsuits, compared to states without limits." (http://www.factcheck.org/article.aspx?DocID=133)

Ted also appears to misunderstand the significance of the data presented by the Institute of Medicine. Their figures are of injuries and deaths due to errors alone, not due to poor results. These numbers are relevant to malpractice reform as they present an opportunity to reduce malpractice risk. While some have used these numbers as evidence of poor performance by doctors, John Kerry shows better understanding of the health care system as he realizes that many of the problems are due to systems errors, not negligent physicians. Physicians are at risk of receiving the blame for bad outcomes due to systems errors beyond our control, and reductions in such injuries as a result of Kerry's proposals will reduce physicians' risk of suits.

While the CBO figures show that caps will have a negligible effect on health care costs, their effects upon malpractice premiums is less clear. Ted acknowledges that initial estimates have been scaled back. The more evidence we have, the more scaling back is necessary. As I noted above, tort reform in Texas has been followed by increases in malpractice premiums of as much as 35% (Houston Chronicle, Nov. 19, 2003), and the same has been seen in other states. Analysis of the situation is often murky because multiple reforms have been enacted, and reforms other than caps are likely the cause for rate reductions. The reductions in premiums in California have been attributed to state regulation of insurance rates, which the Republicans oppose in their national malpractice plans. In many cases, improvements in the malpractice situation has also come about due to mechanisms of pre-trial review, as advocated by John Kerry, and not necessarily from caps. The more experience we have with caps, the more it is appearing that, in the absence of such controls on insurance rates and other mechanisms to address the problem, malpractice premiums tend to move towards the same levels as in states without caps.

There is a profound difference between how partisan attorneys and doctors look at evidence. For an attorney, data which supports one side is useful to make a point, and it is fair game to attack the evidence which contradicts their stand. In contrast, physicians are more accustomed to reviewing all the data and weighing both sides before settling on a course of treatment. One could pick and choose statistics which show that caps have lowered premiums, but others fail to show this result. We need clearer evidence of efficacy before choosing George Bush's proposals over those of John Kerry, which are more likely to succeed and which have less deleterious consequences. As we question the long-term value of caps on malpractice premiums, physicians have seen an analogous situation with HMO's. HMO's start in an area with the promise of lowering health care costs, but after a few years the costs begin to rise as before, but we remain stuck with the consequences.

The insurance industry and lobbyists have conceded the lack of correlation between caps and premium rate reduction in many statements on public record:

"Insurers never promised that tort reform would achieve specific premium savings..."
--Press release published March 13, 2002, by the American Insurance Association (AIA).

"No responsible insurer can cut its rates after a [medical malpractice tort 'reform'] bill passes."
--Bob White, President of First Professional Insurance Company, the largest medical malpractice insurer in Florida, talking about a proposed $250,000 cap in the January 29, 2003 Palm Beach Post.

"I don't think we would argue that the premiums are likely to go down. We believe it will have the effect of reducing the increases in the future. And one of the reasons the premiums won't go down is that even if noneconomic damages are capped, the losses for economic loss, medical expenses, for example, are still in this current environment escalating at, medical inflation is running in the double digits. I forget exactly what it was last year. So even if you were to cap noneconomic damages, the economic damages
will still cause acceleration in the premiums. So it would not go down, I want to clarify if I misspoke and said I thought the premiums would go down."
--Cliff Webster, Chairman of the Washington Liability Reform Coalition, testifying before the Washington State Legislature, House Judiciary Committee, Feb. 21, 2003.

"[M]any tort reform advocates do not contend that restricting litigation will lower insurance rates, and 'I've never said that in 30 years.'"
--Victor Schwartz, General Counsel of the American Tort Reform Association, "Tort Reforms Don't Cut Liability Rates, Study Says," published in Business Insurance July 19, 1999.

"We wouldn't tell you or anyone that the reason to pass tort reform would be to reduce insurance rates."
--Sherman Joyce, President of the American Tort Reform Association, "Study Finds No Link Between Tort Reforms and Insurance Rates," Liability Week, July 19, 1999.

Even if caps were to result in a modest reduction in premiums (something which could also be accomplished in a less objectionable manner) this does nothing for the other problems caused by malpractice. The failure of caps to reduce health insurance premiums have already been discussed. Attorneys, and most likely the general public, often fail to understand the reaction of physicians towards malpractice suits. While being in the courtroom is part of every day life for an attorney, being sued is something a physician never wants to face. For a physician, the main concern is not to be sued at all, not simply avoiding huge settlements. Most suits do not result in a finding against a physician, but physicians want to avoid being sued win or lose. Exclude the five percent of physicians who are responsible for most of the large suits, and the majority of remaining settlements are below the level where caps would be a factor. Caps would not protect us from frivolous suits, and therefore would also do nothing to reduce the forces which promote defensive medicine. For example, The Palm Beach Post, reviewing tort reform in Florida (June 20, 2004), quoted doctors who did not find the caps to be helping with their malpractice concerns.

The evidence is questionable as to whether caps have any significant long-term effect on malpractice premiums. Caps do not significantly lower health insurance premiums, reduce the risk of frivolous suits, or reduce defensive medicine. For the benefit of physicians reading this, resorting to caps is like treating diabetic patients with a marginal reduction in blood sugar (without a significant decrease in the glycosylated hemoglobin), but failing to address their hypertension, hyperlipidemia, and tobacco use. Even if caps did reduce premiums, their adverse consequences would be like treating a fungal infection with Amphotericin B. Just as we have newer, safer, antifungal agents we also have safer and more efficacious answers to the malpractice crisis from John Kerry and John Edwards.

Some might find it reasonable to combine caps with other measures such as those proposed by John Kerry and John Edwards, but even this option appears to be closed to us. Ted has indicated his intention to next criticize John Kerry's proposals. Apparently it is not possible to support George Bush and to support proposals such as pre-trial review, encouragement of arbitration, regulation of malpractice insurance rates, and possibly tax credits to offset excessive premiums. While I would encourage my colleagues to think twice about the effects of caps, some proponents of John Kerry's other malpractice solutions support him in the hope of simultaneously obtaining caps on the state level.

Ted continues to dwell on John Edwards, but this is all irrelevant, as it has never been refuted that his cases were consistent with the medical knowledge at the time of the suits. I see no point in engaging in debates as to whether Edwards' decisions of a decade ago were correct in light of the medical knowledge of today. No physician would want anyone evaluating their medical decisions of a decade ago based upon the medical knowledge of today.

Even if caps were of some value, we must consider their deleterious effects, and chose alternatives when offered others which are as efficacious. It is inevitable that settlements in different cases will be inconsistent, and there are difficulties in quantifying a fair settlement. This does not mean we should not try, and does not justify mandating an arbitrary nation wide cap. In reading the news it appears Ted suffers from a common phenomenon of increased awareness to information which supports one's interests. We see this as Ted stressed the isolated hospital which bucked the trend in reviving old policies on Caesarian sections. This is again evident, as Ted believes there have not been media reports of people failing to receive adequate compensation for injuries. In contrast, I have noted that such examples are common in articles critical of caps.

The National Journal's review of malpractice plans by nonpartisan experts provided an objective comparison of the plans of John Kerry and George Bush. Their numerical scores are partially a gimmick to make the article more readable, but this does not diminish the significance of their conclusions favoring John Kerry's proposals. This nonpartisan group felt that John Kerry's proposals would do more than George Bush's proposals to reduce the squeeze on physicians despite opposition to caps. It is unnecessary to limit the rights of those who have truly suffered from negligence to reform the system and protect innocent doctors.

Ted's repeated arguments against compensation for victims adds credence to the belief often expressed by Democrats that the Republican goal is not really malpractice reform but to change the entire legal system so all industries beyond the medical profession to be virtually immune from responsibility for damages they cause. As I cautioned in a post above, the effects of George Bush's policies, and his ultimate goals, are often quite different than those he states. When viewed from the point of view of those who want to restrict all ability to obtain compensation for negligence of any cause, the prejudices expressed against John Kerry are more understandable, if misguided.

If the goal is to prevent those who have truly suffered from negligence from being able to receive just compensation, then yes, it is true that John Kerry and John Edwards are not on your side. However, for physicians who want true malpractice reform, John Kerry will do more for us than George Bush. John Kerry's plans will help to lower malpractice premiums, reduce physicians' risk from frivolous suits, and reduce the forces driving defensive medicine, without denying individuals their rights to receive fair compensation for injuries and without allowing the federal government to arbitrarily supersede the decisions of local juries. Under John Kerry's plans, we can do better.

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Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.