Dear Jim:

I’m glad I woke you up. Your last contribution reads more like a passionate exchange of views and less like a promotional catalog of Manhattan Institute work. You even suggest that I’m a shill for the trial bar, which confirms that your juices are finally flowing. I’ve been called that a few times by tort reformers in Pennsylvania in connection with my research there (I’ve also been called the opposite by tort supporters when our empirical findings have supported the tort reform agenda). The one and only time it got under my skin was when the e-newsletter for Pennsylvania’s Politically Active Physicians’ Association, which is indeed pronounced PAPA, referred to me not only as a shill but also as “Mr. Sage” – as if they couldn’t bring themselves to believe that a fellow physician might not fully share their opinions on malpractice reform.

I appreciate your not using the M-word, Jim. Though I should add that PAPA’s e-newsletter writer sent me a lovely, unexpected note of apology about a year later when she learned that the reason I oppose stand-alone damage caps is that I favor a “no-trial” approach to malpractice reform that would remove as many cases as possible from litigation.

You and I can let the readers decide, based on our respective published work, whether it is more likely that I carry water for the trial lawyers or that you do so for big business. Since I’m sending you my contributions to post as text documents, and lack the web-savvy to embed links, perhaps you’ll do me the courtesy at the end of our exchange to pass along to readers a short, click-through bibliography of my malpractice writing, which they can compare to the Trial Lawyers, Inc. report :).

Now that you have recovered from the shock of seeing a smiley-face in an online liability debate, we can move on. I agree with many of the points you made in your last post, and appreciate the time you spent explaining your thinking. I’ll react to a few things you said, but will do so briefly in order to leave time for us to discuss three major aspects of medical liability that we haven’t yet broached: things I consider true innovations in malpractice reform, the class action and multi-district side of litigation, and the “health care business model” of the trial bar. I’ll try to cover the first two issues in the process of responding to your last post. I’ll save most of my ideas on the third for use in response to your next post, which you promised would be devoted to that subject.

I’m delighted that most of the tort reformers you talk to aren’t interested only in capping damages. You must know different tort reformers than I know. Likely this is because the most determined tort reformers in my world are physician groups like PAPA, who have been conditioned to believe that anything that deviates from MICRA’s sacred $250,000 cap is a bill of goods. Remember what happened to Sen. Feinstein when she tried to broker a bipartisan compromise on a more flexible cap. I assume you deal less with malpractice reform constituencies than with product liability or class-action reformers. Perhaps these groups have more sophisticated views about reform. If you can enlighten me, please do. And be honest – this is for posterity.

(That last bit wasn’t intended to be “snarky” – does that mean I’m being hunted? – but is merely a quote from William Goldman’s The Princess Bride.)

You mention Philip Howard and his organization Common Good several times in your post. I have a lot of respect for Philip, and devote much of my current effort on malpractice reform to developing medical courts proposals that might actually work (which I’ll explain momentarily). I understand why you invoked Common Good’s work in our exchange – like me, Philip does not support stand-alone caps – but you should realize that a genteel business lawyer like Philip is not generally perceived as moderate by groups that aren’t naturally sympathetic to tort reform. You might want to push the envelope a bit in future Manhattan Institute events if ecumenism is important to you.

Like Common Good, I support medical courts. My medical courts, however, are somewhat different from theirs. To my mind, their model has three significant limitations. First, their medical courts are entirely reactive. Waiting for patients to find lawyers and for lawyers to file claims perpetuates many of the worst features of the current system. Second, their medical courts are siloed. There are already enough uncoordinated bureaucracies involved in medical liability. Third, their medical courts are hypothetical. Building them from scratch will take more political force than realistically can be mustered. These risks materialized in the medical courts legislation introduced in Pennsylvania in 2003, which was a thinly veiled attempt to redistrict the state so that Philadelphia jurors, who are historically pro-plaintiff, were distributed among and diluted by jurors from suburban and rural areas. The rest of the bill, though it paid lip service to Philip’s admirable goals, was basically window-dressing.

The medical courts I support, which are also endorsed by the Institute of Medicine (2002) and the Joint Commission on Accreditation of Healthcare Organizations (2005), are administrative compensation mechanisms that would be closely connected to existing state or federal health care regulatory processes. A medical court might be integrated with state departments of health or patient safety, with self-regulatory processes such as JCAHO accreditation, or (my pet project) with Medicare and perhaps Medicaid. Private employers could also create administrative compensation systems in conjunction with sponsorship of health insurance under federal ERISA law.

In brief, participating health care providers – generally hospitals and other group practice settings – would be held accountable for instituting patient safety procedures, detecting medical errors, and communicating unanticipated outcomes of care to patients. Providers would have strong incentives to engage the patient in mediated discussions, and to offer prompt, fair compensation. The rare situation in which avoidability or payment amount was contested would be referred to an administrative tribunal. Expert documents regarding standard clinical practice and avoidability of error would help inform these decisions, as would schedules of appropriate economic and non-economic damages. Partisan expert witnesses would be the exception, not the rule.

The last point I’d make about Common Good is that their medical court proposal is part of an overall social judgment about the need for reliability in adjudication. My interpretation of their project is that they want people in society who possess expert skills (teachers, doctors, scientists, and even judges) to feel free to exercise their expert discretion without fear of being arbitrarily second-guessed in court. That seems right to me, but medical care isn’t the best illustration of their problem or solution. Medical care is the country’s most expensive cottage industry. By and large, there is too much discretion being exercised in too fragmented a fashion. What is needed is a legal environment (both judicial and regulatory) that fosters organization and efficiency without sapping medical care of professionalism or humanity. The one aspect of malpractice where Common Good’s plea for reliable justice makes sense is defensive medicine, because physicians’ well-documented mistrust of the liability system has real consequences for patients. If a medical court connected to a health care regulator is less anxiety-provoking for physicians, that’s great – and perhaps that regulator can also make liability insurance more secure (e.g., the IOM proposal).

A few words about my 2005 JAMA article with Dan Kessler and David Becker. That article concluded that adopting MICRA-style tort reforms increased the number of physicians in a state by roughly 3% over the long term. The article by Hellinger and Encinosa you mentioned in your first post (while ignoring your colleague Dan – sniff) reached a similar numerical result. Our article is about physician supply specifically, not about the overall “effectiveness” of caps. Its value lies in the following findings. First, a 3% supply increase is certainly not trivial but is also not massive – the rough equivalent of a 10% pay raise (doctors indeed do value a less hostile malpractice environment). Second, the supply increase comes entirely from initial practice location decisions and delayed retirement, not relocation from state to state. Third, the supply boost from caps was greater in high managed care states, suggesting that doctors can tolerate either managed care or malpractice litigation but not both. Fourth, solo practitioners have the greatest difficulty sustaining practice in uncapped states, and tend in those states to move into groups (lower professional satisfaction, but probably higher medical quality).

Let me also offer you a bit of support for Dan Kessler’s earlier article on defensive medicine with Mark McClellan, which the Manhattan Institute has long promoted. I always praised that work for its methodology, but was skeptical about its findings even leaving aside the extrapolation to overall national health spending. My main concern was that the authors had not sufficiently controlled for managed care, which might be responsible more than tort reform for reducing clinical expenditures. The Kessler-McClellan piece was about defensive medicine that takes the form of “assurance behavior” such as excessive testing and treatment. I asked Dan to work with me on physician supply as the first piece of what I hoped would be an exploration of “avoidance behavior,” in which liability potentially reduces access to care. (A second installment, which someone should fund, would examine the effect of caps on specific clinical services for particular patient groups). A side-benefit of this project was to confirm the Kessler-McClellan findings, as follows. Managed care cuts costs, but repels physicians. If the Kessler-McClellan findings were driven by unmeasured managed care, the Kessler-Sage-Becker study should have found that caps decreased physician supply (as managed care would). The fact that caps increased supply in our study makes me feel better about the original Kessler-McClellan results.

I’m glad you explained Peter Huber’s essay on health care costs and labor productivity. It raises a very important set of issues that I hope we can discuss further at some future time. The only comment I want to make here is that redistribution can be a legitimate goal as well as efficiency. Uwe Reinhardt, reviewing Richard Epstein’s book on health reform, opined that societies should be judged in part on how they treat their least productive members. America spends a lot of its health care dollar on the elderly and disabled. This can’t be justified on labor productivity grounds, but like Reinhardt I’m glad I live in a society that makes those resources available nevertheless.

On liability and doctor’s fear of admitting mistakes, I agree but cautiously. I attended the first two Annenberg Conferences on patient safety in the early 1990s. The stars of these conferences were true patient safety pioneers such as Don Berwick and Lucian Leape. But there were also opportunistic participants – some associated with physician-owned liability insurers – who mainly viewed the patient safety movement as a new path to traditional tort reform. In fact, I was asked to play a trial lawyer in a concluding debate at the second conference because the organizers couldn’t persuade an actual trial lawyer that it would be a balanced discussion. The insurers’ argument? That patient safety would only improve if doctors’ mistakes were cherished, not punished. Therefore damages should be capped. Putting aside a surfeit of aviation analogies (patient safety folks like airplanes as much as health economists like cars), this reasoning only made sense to doctors. To everyone else, the patient safety movement revealed that in the prior decades’ malpractice debates the lawyers had been right: there really was a lot of poor care, not just a bunch of frivolous claims. The truth, as always, is in between, but it makes me uncomfortable when you suggest that legal immunity alone will turn bewildered clinicians into effective ones.

You had a lot to cover in your last posting, as do I in this one, so we each need to be vigilant about understanding each other’s points, especially as we wind down each installment. Here are a couple of things I think you missed.

First, I am NOT echoing the trial bar’s rhetoric about evil insurance companies when I discuss the failure of insurance markets to keep pace with industrial change in medicine. Rather, I am criticizing the tort and insurance-based practice of saddling physicians with more liability than their share of health system revenue can support, and of placing the greatest burden and the highest volatility on a few medical specialties. For more detail, read my article titled “The Forgotten Third” in the July-August 2004 Health Affairs, and my essay titled “Malpractice Insurance and the Emperor’s Clothes” plus the articles by Tom Baker and Mark Geistfeld in the issue of the DePaul Law Review (2005) that published the papers from that school’s 2004 Clifford Symposium on tort law. There is no quick fix here, but in my view a real need for individual states and the National Association of Insurance Commissioners to immerse themselves in the problem.

Second, of course administrative costs matter to choice of liability regime, and you are quite correct that the only justification for high administrative costs is effective deterrence, which I agree isn’t a prominent feature of the current system. The main promise of a comprehensive “no-trial” medical court approach is that it would both improve deterrence (in part through prospective regulation) and reduce administrative costs, which in combination would allow it to improve compensation as well. BUT, please don’t pooh-pooh my point about wealth transfers. I constantly see tort reform literature that implies that every dollar not paid as a malpractice insurance premium is a dollar saved by society. I strongly suspect that you have as well. This is simply wrong.

As for universal coverage, it has a lot to do with effective malpractice reform. Dollars spent on health care and dollars spent to compensate patients for defective health care ultimately provide similar benefits to the public. But we never discuss them in the same breath. The closer we come to universal coverage, the more necessary it will be for society to structure its liability system in ways that maximize the cost-effectiveness of the health care provided. (This is another formulation of your point, following Grady, about not forcing people to buy insurance they don’t want.) Universal coverage also makes compensation for injury mainly a first-party rather than a third-party matter, which I think is a big improvement. As I explain in the Health Affairs article on malpractice insurance, third-party liability coverage runs contrary to most things that physicians are supposed to offer patients in high-quality health care systems.

I look forward to our discussion of the trial lawyer’s business model.

Bill