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Election 2004 Special; links down

September 16, 2004 1:05 PM

We're excited to have a special Election 2004 featured discussion by hosting two contributors who are very well-versed in the topic of tort reform but come down on the opposite sides of the political fence. Dr. Ron Chusid, founder of Doctors for Kerry, and our own Ted Frank, a Bush supporter, will make the case for their respective candidates. Bookmark us here, so you can join the discussion as it develops!

Links down: Sept. 20 Chusid, Frank; Sept. 21 Chusid; Sept. 22 Frank, Chusid; Sept. 23 Frank 1, Frank 2; Sept. 24 Chusid, Frank, Chusid, Frank, Chusid; Sept. 27 Frank; Sept. 28 Chusid.

Thank you for the opportunity to explain why many physicians are supporting John Kerry and John Edwards in light of the frequent attacks on them over malpractice reform. There is a prevailing prejudice that, being attorneys (despite the fact that Kerry worked as a prosecutor, not a plaintiff's attorney) or simply because they are Democrats, they are unlikely to act to resolve the malpractice situation. We are dealing with individual candidates who should be judged based upon the distinct policies and experiences they bring to the table rather than stereotypes as to what Democrats believe in. Basing judgments on such stereotypes has been hazardous in recent years as we went from Democrat Bill Clinton, who championed welfare reform and announced that "the era of big government is over" to Republican George Bush who brought "big government conservative" into the political lexicon.

It is especially dangerous to make such assumption about John Kerry. Kerry has often been characterized as a fiscal conservative who has been a strong supporter of small business and who has broken with his party to support a balance budget. On health care, Kerry has been a pragmatist rather than an ideologue, learning from previous attempts to change the system. The Kiplinger Letter, hardly a publication of the left, has characterized Kerry's proposals as "friendly to small business." Kerry understands that resolving the malpractice situation is necessary, not only out of fairness but because of the need to control these costs in order for his health care plan to succeed. Kerry acknowledged the importance of controlling malpractice-related costs, as well as the prejudices against a Democrat taking action on this issue, in his book A Call to Service:

"Medical malpractice is another area in which my plan would control costs. This is a subject which some Democrats have shied away from, fearing that it might offend trial lawyers, an important source of campaign dollars for many Democratic candidates."

John Edwards has also been a victim of assumptions of being unfriendly to the medical profession. As a physician, I initially had mixed feelings about a malpractice attorney running, but early in the nomination battle did appreciate Edwards' support of physicians' interests related to dealing with HMO's. Edwards' personal knowledge of the malpractice system has allowed him to make valuable contributions to Kerry's proposals for malpractice reform. Edwards has also written in support of doctors on the malpractice issue:

"The rising cost of malpractice insurance for doctors is getting in the way of good health care. In rural areas, some specialists can no longer afford to practice, and patients can't get the care they need. We need to fix this problem now, and we need to fix it in a way that is consistent with the doctors' own Hippocratic Oath: First, do no harm." (Let's Keep Doctors in Business, Washington Post, May 20, 2003.)

John Kerry's proposals on malpractice reform include opposition to most punitive damages, review of claims before a suit could be filed to ensure that a reasonable case exists, encouraging the use of arbitration, imposing sanctions against plaintiffs and attorneys who bring frivolous suits (including adoption of the "three strikes and you're out" provision first advocated by John Edwards), working to reduce medical errors, and elimination of special privileges which allow insurance companies to fix prices and fail to pass savings on to physicians.

Most doctors supporting Kerry initially backed him for reasons other than malpractice reform, such as concern for the 45 million people without health insurance, a desire to keep conservative ideology out of medical and scientific decisions, or because of the harm they see to their patients and practices due to provisions of George Bush's Medicare bill. Fortunately we also found that the conventional stereotypes did not apply and that it was not necessary to compromise desires to reform the malpractice situation by supporting John Kerry. In July 2003 the National Journal had a nonpartisan group compare the health care positions of all of the candidates then running. The survey used lowering malpractice rates as a measure of "reducing the squeeze" on physicians. For his support of caps on settlements, George Bush was not surprisingly ranked near the top, ahead of all the Democratic candidates except one: John Kerry. Kerry came out on top, even ahead of George Bush, despite his opposition to caps.

Kerry's opposition to caps, and votes against bills containing such measures, is commonly used to argue that Kerry opposes malpractice reform. The National Journal study demonstrates that there are other ways to assist physicians on the malpractice issue, and to achieve high marks in this area, beyond caps. While many doctors supporting Kerry do support caps, such measures raise a number of questions, both in terms of efficacy and justice. Cases which are cited to show a benefit from caps are ambiguous as generally other factors have appeared to be responsible for any reductions in malpractice premiums.

George Bush, when on the stump, places the blame for the cost of health care almost exclusively on malpractice. The Congressional Budget Office's study on malpractice found that malpractice only accounts for 2% of health care costs. Those of us in the medical profession suspect that this underestimates all the effects of malpractice, and John Kerry understands this as he includes solving the malpractice situation as part of his plan to lower health care costs. The CBO also found that caps would only reduce insurance premiums by less than half of one percent, hardly making this a reasonable solution for individuals or businesses faced with premiums which have been rising by double digits the last few years.

Caps also present concerns beyond being of limited value. This special treatment for non-economic damages trivializes such damages. If I were to lose my vision, the loss would be far greater than the effects on my income. A loss of a child is a devastating loss which greatly exceeds any economic loses. I have concerns about such losses being handled by arbitrary limits without regards to the circumstances of the individual case. Rather than having politicians in Washington dictate the amount of settlements this might best be left in the hands of local juries which have reviewed individual cases. I find it surprising that conservatives who generally distrust Washington advocate having Congress make such decisions to override decisions made in local communities. Of course I often join conservatives in their distrust of the federal government, especially one in which one party now controls all three branches.

Proponents of caps often cite the more extreme cases found in certain localities, and more often certain specialties, where malpractice is impacting access to care. While physicians, and perhaps the public, give most notice to the occasional huge settlement, the truth is that most malpractice suits do not result in a payment to the plaintiff, and a large percentage of settlements are small enough so that caps would have no bearing. For the typical physician the more important concern is that they are not sued at all, not the maximum size of a possible settlement. This is where John Kerry's proposals have the most benefit as they keep frivolous suits out of the legal system. For those situations where there is a true crisis, and the cost of malpractice is keeping physicians from practicing their specialty, pragmatic solutions could be devised without resorting to caps which do not impact the majority of physicians.

If proposals such as those Kerry has already proposed are not sufficient, this does not preclude the development of further solutions. Kerry's campaign positions represent the first step, not the final word, in his attempts to resolve this problem. As James Carville wrote in Had Enough. A Handbook for Fighting Back, "It seems to me that rather than creating a big fake issue of tort reform as George Bush seems intent on doing, we just do what it takes to fix the problem:" Should measures such as those proposed by John Kerry fail to solve problems for specialties hard hit by malpractice premiums, as a last resort Carville suggests, "We say to doctors that if you're in a high risk specialty, and your premiums go up by a certain percentage in any given tax year, you get a [tax] credit to offset that rise." John Edwards expressed similar goals in the Washington Post article mentioned above:

"Together these measures will give relief to most doctors who are suffering under the staggering weight of insurance premiums. But where premiums still cause shortages of medical care, Washington must provide a temporary subsidy so good doctors can continue their essential work. We shouldn't be padding insurers' profits and hurting people who have already suffered immensely, as the president proposes. But we should be protecting good doctors and the patients who depend on them."

George Bush is out on the stump arguing that "you cannot be pro-doctor, pro-patient, and pro-lawyer; you must choose" as he makes references to Kerry's choice of John Edwards as running mate. Bush has apparently forgotten his earlier claims to be "a uniter, not a divider" but using such polarizing rhetoric to set doctors against lawyers will not help solve the problem. In contrast to George Bush's reliance on ideological rhetoric, both John Kerry and John Edwards approach this from a pragmatic, centrist perspective.

John Kerry and John Edwards have avoided resorting to turning malpractice into a question of being anti-doctor or anti-lawyer. For example, in response to the1999 study by the Institute of Medicine blamed medical mistakes for the deaths of 44,000 to 98,000 hospitalized Americans annually, John Kerry did not join those who used this as an excuse to justify suits against doctors. Instead John Kerry recognized that many of these deaths are due to systems problems and not errors by individual physicians. Instead of seeking punitive action, he recommended looking at current systems, knowing that this will decrease errors and decrease the potential for malpractice cases. While studies vary as to the exact numbers, many articles have made the point that five percent of physicians are responsible for a high percentage of large or repeated malpractice settlements. Rather than taking an ideological stand, we need a president who understands the nuances of individual cases. We must differentiate cases of "bad doctors" who are not properly disciplined from cases where the malpractice situation has gotten out of hand, and apply individualized solutions as appropriate.

By politicizing the malpractice situation, and attempting to pit doctors against lawyers, George Bush makes it harder to come to a common ground necessary for achieving a solution. We need a president such as John Kerry who is willing to go beyond singling out one party as the villains, and look for solutions which really work. John Kerry and John Edwards have been working to break down resistance to tort reform, find solutions fair to both doctors and patients, and are in a position to sell their plans to both Democratic groups and trial lawyers. Just as only Nixon could go to China, perhaps John Kerry, with the help of John Edwards, is in the best position to devise a fair solution which could be sold to both trial lawyers and physicians.

I also appreciate the irony which Ted mentions with regards to our respective professions and political affiliation in this election. In my case it is easy to break with expectations as a physician and to support John Kerry as his policies are preferable for the medical profession, and our patients, to those of George Bush. This includes John Kerry's positions on malpractice reform. I'm sure Ted has his reasons for supporting George Bush despite his anti-lawyer and other divisive rhetoric, and there is something commendable in "feeding the mouth that bites you" for what I assume Ted sees as a greater good.

I note that Ted does misstate my position a couple of times. I assume that this is inadvertent, and will correct the record. However, I cannot help but be wary considering that George Bush's campaign is based upon distorting Kerry's positions and voting record, and then attacking the straw man it creates rather than commenting on John Kerry's actual views.

Ted declares victory, or claims I'm ready to concede defeat, based upon my comment on the other positions for which physicians support John Kerry. I noted that many of us physicians supporting Kerry were initially attracted to his campaign for a variety of reasons other than malpractice reform, but subsequently found it fortunate that " the conventional stereotypes did not apply and that it was not necessary to compromise desires to reform the malpractice situation by supporting John Kerry."

Ted divides this debate into three parts, the first of which he discussed today. Issue two gets to the heart of the matter, but Ted can save his time on argument three. It is not necessary to argue that medical malpractice reform is a significant issue as, contrary to his claim, I am in agreement on the matter. Our differences are over how this is more likely to be achieved, not that it desirable or necessary.

In attempting to make the case that Kerry would not be serious in seeking malpractice reform, Ted presented examples outside of malpractice. Talk about trying to compare apples and oranges. This does not relate to the topic at hand. as John Kerry has never claimed to be a proponent of limitations on all law suits in all situations. He does specifically, however, specifically advocate reform on malpractice as it has impact in areas such as patient accessibility to doctors and the success of his health care plan. Failing to support specific limitations in areas such as Y2K litigation does not provide reason to doubt Kerry's sincerity on those positions he does advocate, such as reforming malpractice.

Much of Ted's argument comes down to Kerry not speaking out on the subject in exactly the place or time as he (or others) desire. John Kerry follows his own schedule, sometimes even to the chagrin of those of us who support him. If saying the right thing at the right time is to be the litmus test, John Kerry passed in my book. When I had the opportunity to discuss malpractice reform with him at a private meeting with first responders in August, shortly after he chose John Edwards as running mate, Kerry made his determination to reform malpractice clear.

The choice of John Edwards did increase attacks on Kerry related to tort reform, but such attacks began well before this choice. In reviewing John Edwards career from the perspective of a physician, I did not find anything questionable as Ted accuses. The only "fault" I could find with John Edwards was his failure to review the medical literature of the future. The only reasonable standard to evaluate Edwards' suits is by medical standards of care and medical knowledge of the time. Edwards could not be faulted for being unaware of research which was not published for years following these cases. Edwards' suits have been repeatedly reviewed by political opponents and medical experts, and have held up well to such scrutiny. Face it, there was no reason for Edwards, who had the luxury of picking from many cases, to bother with frivolous suits as opposed to maximizing his chances for victory by limiting himself to valid cases.

Ted's arguments give no reason to doubt John Kerry's sincerity in planning to reform the malpractice system. In the case of George Bush, the question is not whether he will follow through with his proposals but whether such proposals will have the desired effect. George Bush's policies tend to have results which are180 degrees opposite to how they are packaged politically. In the case of George Bush's tort reform in Texas, in light of the increases in malpractice premiums ranging from 20 percent to 35 percent, as a physician my response must be, "no thank you, Mr. President." I'm not interested in looking back at Y2K legislation or creating a Sister Souljah moment. I'm interested in replacing policies which are Wrong for doctors, Wrong for patients, and Wrong for America with those of John Kerry which will provide real answers on health care and malpractice.

In defense of caps

September 22, 2004 12:30 AM

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.

Some corrections

September 23, 2004 6:10 PM

This entry is essentially nit-picking, because I thought Dr. Chusid's latest post merits some corrections. The casual reader that may not care about minutiae over which study and what insurance executive said what, should skip to my next post, a discussion of the concept of "frivolous litigation" in the medical malpractice context.

I do need to make one correction on my side, however. I previously agreed with Dr. Chusid's assertion that the Bush plan created federalism problems. I was at least partially wrong. To the extent the Bush proposal mirrors the HEALTH Act of 2003 as passed by the House, �11(c) of that law has provisions that allow states to override the $250,000 non-economic damages cap with a different cap of their own choosing. The result is to change only the default rule; states will have considerable flexibility to decide for themselves that they want a different cap (or, effectively, no cap at all if trial lawyers can persuade a legislature to impose a meaningless cap of several billion dollars). The HEALTH Act of 2003 consists of much more than the controversial element of caps, including some elements in the Kerry-Edwards plan; when I discuss those elements, I'll point out the similarities in the legislation.

First, I'm not sure why Dr. Chusid keeps pointing to Texas malpractice insurance rates as evidence against medical malpractice liability caps. Such caps were not passed until Texas voters approved a constitutional amendment in 2003. The use of Texas as evidence against caps is especially ironic, as Texas's largest medical malpractice insurer, the Texas Medical Liability Trust, has reduced rates 17% in the year since reform passed, including an immediate 12% decrease. (The 35% rate increase mentioned in the Chronicle was a proposed increase from a different insurer, who correctly noted that it had faced a one-time surge in malpractice filings from plaintiffs' attorneys seeking to file suits before the new rules took effect. The increase never took effect, because the state regulatory board disapproved it--precisely because the regulatory board felt that tort reform should reduce rates.)

Second, in the past 30 years, the proportion of births by c-section has gone up fivefold (even as the rate of cerebral palsy has stayed constant). A 1993 study by Localio in the Journal of the American Medical Association showed that doctors who had been sued were much more likely to increase their rates of cesarean delivery. The idea that C-sections have declined in spite of pressure from the Senator Edwardses of the world to engage in unnecessary defensive medicine surgery seems incorrect to me, but I'm happy to be educated on the subject.

Third, I certainly would not liken the death of child with the death of a pet, and I don't think anything I said could be fairly interpreted otherwise. To the extent that needs clarification, I do so here. The problem I raise is rather one of incommensurability. If Kramer breaches a contract with Jerry to sell him a working car, it is easy for a jury to calculate compensation--how much money would it take to put Jerry in the same place if the contract was not breached so that he's effectively indifferent? But if Dr. Van Nostrand blinds Jerry, Jerry's damages are in many ways incalculable. The results will be incoherent, and inherently unjust.

Fourth, Dr. Chusid repeats (presumably from fact-sheets from the plaintiffs' lobby) a quote of Victor Schwartz out of context about a completely different piece of litigation. Schwartz corrects the record in this 2002 Congressional testimony, and makes clear that caps will have a beneficial effect on malpractice premiums. Other quotes indicate that insurers are stating that caps will help reduce the rate of increase of insurance premiums; this is surely a very real benefit.

Fifth, CBO's report also noted another study in the Quarterly Journal of Economics (called by Duke's Center for Health Policy, Law and Management the "most definitive study to date") that found defensive medicine savings of $69 to $124 billion nationwide could be achieved by tort reform. The CBO's conclusion on the relationship between tort reform and defensive medicine was that "the question of whether such limits reduce spending remains open, and CBO continues to explore it using other research methods."

Sixth, Dr. Chusid is correct when he says he was distinguishing between health-insurance premiums and malpractice premiums with his use of the 0.5% figure. But the 0.5% figure is only true if one accepts the premises that (1) malpractice costs consist only of malpractice insurance premiums and (2) caps affect only malpractice premiums, rather than also use of defensive medicine, willingness of doctors to remain in the profession (and the costs with reduced supply of personnel), and other miscellaneous costs associated with the current malpractice regime. I think it's fair to say that reliance on the 0.5% figure implies that one is understating the impact of malpractice issues.

Seventh, it's unclear to me why the Congressional Budget Office is a definitive source worth citing when one is willing to cite to its simple arithmetic estimate the effect of caps on medical insurance, but is only part of a "weak case" when the CBO has stated that caps will reduce malpractice premiums substantially. As I state above, I don't think caps are a solution to all of the problems of the current medical-malpractice system, I am confident that premiums will be lower with caps than without them, and I am confident that readers can parse the relative quality of evidence on both sides of the question.

What is "frivolous"?

September 23, 2004 6:11 PM

With that out of the way, we can move on to the topic of how the two plans compare in dealing with what are sometimes called "frivolous lawsuits." We agree that caps are not a panacea for such lawsuits, however defined, but the question remains whether the Kerry plan can do better.

As an initial matter, the word "frivolous" needs to be explored. Problems arise because a number of tort reform proponents and people in the popular press use the term "frivolous" in the colloquial sense, as a synonym for "unsound" or "improper" or just simply as a shorthand for "bad as a matter of public policy." Opponents of tort reform cheerfully co-opt this term by also expressing their opposition to "frivolous" suits--but their use of "frivolous" is in the legal context, where even a completely meritless suit may not be "frivolous."

For example, if I were to sue a fast-food chain because I spilled hot coffee on myself, my suit would be meritless, it would be bad public policy to allow me to recover, and talk-show hosts everywhere would consider it frivolous--but my suit would probably not be "frivolous" under the law. Some states go even farther, and require a showing of bad faith before judging a suit "frivolous." I therefore try to avoid using the word, as it only confuses the debate; it is a practice I commend to proponents on both sides of the issue.

In my experience, when doctors express their fear or concern of frivolous lawsuits, their concern is about one or both of two kinds of suits: (1) lawsuits of dubious merit that take time and expense to defend oneself against, but which will eventually be resolved for a nuisance-value settlement or in favor of the defendant; and (2) lawsuits of dubious scientific merit where a doctor is unfairly accused with 20/20 hindsight of making a wrong decision, and where the testimony of an expert-for-hire is combined with the demagoguery of a plaintiffs' attorney and a misled lay jury to result in a large judgment against the doctor.

I think caps, at least at the margin, do much to reduce both kinds of cases, simply as a matter of economics. A lawyer will take a longshot case if there's a chance of a big result: that tail of the distribution increases the expected payout of a lawsuit, decreases the chance a risk-averse insurance company will fight, and increases the settlement value. I wouldn't claim that caps will reduce these two categories of lawsuit to zero, and resolve all doctors' grievances against the current medical malpractice system. But surely chopping off the tail and the chance of unmoored non-economic damages increases the quality of lawsuits that are actually brought, simply because it takes a more meritorious case with real damages in a world with caps than a world without caps before it becomes profitable to sue a doctor. Do you disagree?

Thus, before we continue to a discussion of the points of the Kerry-Edwards plan (on which, Walter Olson's Wall Street Journal article is an excellent starting point that I would have trouble improving upon), what do you mean when you say "frivolous lawsuit"? And what do you think Kerry and Edwards mean by the term "frivolous lawsuit"? Do you agree that either of the two categories of lawsuit mentioned above are a public policy problem and a deterrent to doctors practicing medicine? And, if so, why do you believe Kerry-Edwards plan will affect filings in these two categories?

It's worth noting that the two pieces of evidence that Dr. Chusid cites is actually two conclusions from one single Weiss ratings study -- and a severely flawed study at that. Several of the states that Weiss grouped in its "capped damages" group had caps several times greater than the $250,000 caps at issue here. Worse, more than half the states in the Weiss study's "cap" group did not have caps in 1991, the baseline year from which it is measuring insurance rate increases. Other results were manipulated by using median figures instead of means. Weiss Ratings also failed to account for the fact that policyholder dividends were more common in 1991 than in 2002.

In short, the Weiss Ratings study has no credibility whatsoever. Indeed, in a July 7, 2003 e-mail to Senate Majority Leader Frist, Medical Liability Monitor editor Barbara Dillard objected to the "misleading" data in the Weiss Ratings study. The National Practitioner Data Bank also objected to the Weiss Ratings misuse of its data.

The American Academy of Actuaries, which has no dog in the lawyers vs. doctors fight, and takes no official position on tort reform, has submitted congressional testimony that such caps will reduce insurance rates. (The testimony also rebuts the Kerry-Edwards urban legends that the stock market, rather than increased liability awards, are responsible for the crisis.)

Dr. Chusid tells only a misleading fraction of the story of Ohio. Caps did not pass there until 2003, and Ohio Department of Insurance Director Ann Womer Benjamin has expressed no disappointment whatsoever: rather, she stated that one could not expect to see results immediately, as opposed to five to ten years down the line. The ODI certainly does not oppose caps; rather, it calls them an important step in resolving the malpractice crisis.

One reason state caps don't take effect immediately (except, as in Texas, where they are enacted into the state constitution) is that the plaintiffs' bar immediately challenges them in court, and insurance companies cannot be sure that the caps won't be retroactively repealed by an activist plaintiff-friendly court. (It was years before California's caps were affirmed by its court system.)

Dr. Chusid repeatedly claims that the Kerry-Edwards plan will supposedly "[r]educ[e] the risk of a physician facing a frivolous suit." But he refuses to say precisely what the candidates mean by "frivolous suit." Dr. Chusid tries to dodge the question by calling it one of "minutiae." But this is not trivia: it is the centerpiece of the issue, and is the difference between real reform and fake reform. Does the Kerry-Edwards plan address the lawsuits that doctors are most concerned about, or is it an empty soundbite to neutralize an issue where the two have a poor track record?

As I discussed earlier, when laypeople speak of frivolous malpractice suits, they are talking about the meritless suits that cost doctors money to defend and, worse, often unfairly tar doctors with malpractice verdicts through pseudo-scientific expert testimony and demagogic second-guessing; caps will reduce the profitability of such tactics, and thus reduce the incentive to engage in such suits. Dr. Chusid's counter-argument--that caps can only have an effect on the 2% of plaintiffs who reach a favorable verdict--relies on the assumption that caps would have no effect on doctors' ability to settle malpractice cases. But, in fact, under the current system, it is the threat of a large jackpot judgment that forces insurers to settle a meritless case. It's clear that caps remove this extortionate aspect of the settlement value of the case. Only if one posits that plaintiffs' lawyers are irrational will one be able to claim that caps will not reduce malpractice litigation. The fact that the plaintiffs' bar is feeding millions to politicians and advertising to stop the trend of caps is evidence that the plaintiffs' bar knows the adverse effect caps will have on Trial Lawyers Inc., and the benefits that will redound to the rest of us.

Still, Dr. Chusid insists that the Kerry-Edwards plan will stop "frivolous lawsuits." If this is so, and it can be done without the occasional problem caused by caps, perhaps it is worth a try. But the problem is the disconnect between the colloquial and the legal meaning of the word "frivolous." A case can be completely meritless, but not frivolous under the law, so long as it was not brought for purposes of harassment or other "improper purpose." So are the "frivolous lawsuits" that the Kerry-Edwards plan purports to address something meaningful, or is the use of the term a narrow equivocation? Dr. Chusid's refusal to answer the question perhaps gives a hint. Fortunately, we don't need to guess very hard. Senator Edwards co-sponsored a medical-malpractice "reform" bill, S. 1374, that addressed this very question. To qualify as "frivolous," a lawsuit must

(1) be presented for an "improper purpose"; and
(2) neither be "warranted by existing law" nor by a good-faith "argument for the . . . modification . . . of existing law"; and
(3) have no evidentiary support nor reasonable assumptions "based on a lack of information or belief."

Clearly, this is not the category of cases that is causing a malpractice crisis and runaway awards. The number of medical malpractice cases that are "frivolous" under this restrictive definition is extraordinarily low; the number of cases that Kerry-Edwards consider "frivolous" that are in the system today that are not addressed by existing laws is close to, if not precisely, zero. The Kerry-Edwards plan's attack on "frivolous litigation," unless substantially different than the legislation previously co-sponsored by Edwards, will do nothing to reduce malpractice litigation, much less the malpractice litigation that most concerns doctors.

But the Kerry-Edwards plan's reform is even more illusory than that. Recall that one of the planks of the plan is to require "certificates of merit" that a qualified medical specialist has approved a case. This is a low bar: to survive a summary judgment motion, a plaintiff needs to present expert medical testimony of malpractice. Moving the requirement earlier in the process does nothing to prevent attorneys from continuing to hire professional testifiers. Moreover, the "certificate of merit" effectively inoculates attorneys from any finding that they've filed a "frivolous" suit under the S. 1374 definition of "frivolous"--virtually the only exceptions would be presenting fake evidence to the "qualified medical specialist" or a forged certificate of merit. The "three strikes and you're out" plank of the Kerry-Edwards plan becomes essentially toothless, imposing sanctions on only the most foolish and incompetent of lawyers. The lawyer who wins $23 million by persuading a jury to adopt the fiction that cerebral palsy is caused by failure to perform a C-section remains unaffected.

The Kerry-Edwards plan announces that it will bar punitive damages "unless intentional misconduct, gross negligence, or reckless indifference to life can be established." Unfortunately for those who wish to claim that this is tort reform, in just about every state punitive damages require a showing of conduct that is intentional, grossly negligent, or reckless--and some states require a greater showing than that. It is simply not true, as Dr. Chusid claims, that this proposal will resolve "most" punitive damages.

The Kerry-Edwards plan seeks to repeal the McCarran-Ferguson Act. Why this is a short-sighted idea is far too complex to be explored in this space. But the concept is based on the myth that the malpractice insurance problem is a function of evil insurance companies rather than the billions insurance companies are paying to lawyers because of the malpractice litigation crisis. The main effect on malpractice insurance by repealing McCarran-Ferguson would be to "undermine the risk sharing industry's ability to classify and share risk", increasing the expected cost of insurance, and making health care more expensive for everyone.

We have no details on what the Kerry-Edwards plan mean by "non-binding arbitration." But doctors have reason to be wary. As Walter Olson noted, one Democratic proposal for non-binding arbitration in the House of Representatives, H.R. 1219,

turned out on inspection to include a kicker that would have pre-empted and invalidated all forms of alternative dispute resolution other than mediation--including arbitration programs that work well in some states in forestalling litigation--as well as all contractual barriers to suit.

Even if a party unambiguously won the arbitration, the losing party could reject it and proceed to trial--and exclude the findings of the ADR from evidence at trial. State taxpayers would likely end up footing the bill for the fruitless mediation because of the unfunded mandate that the mediation be "affordable" and "reasonably convenient." Such a bill would unambiguously make the malpractice litigation crisis worse. Recall that the benefit of caps was that it reduced settlement pressure on doctors; by reducing settlement pressure, one reduces the number of lawsuits. In contrast, Kerry-Edwards, by forcing doctors to go through an additional level of litigation through mediation, while potential damages remain uncapped, makes it more expensive to litigate, which increases settlement pressure. The prospect of increased settlement pressure will increase the number of malpractice lawsuits, and the problem will get worse.

The late-night-comedy stereotype is that Bush is shallow compared to Kerry as a candidate of substance. But when it comes to medical malpractice reform, it is Kerry who is resorting to what is at best an empty soundbite of "stopping frivolous litigation" and at worst a counter-productive proposal that will benefit noone but attorneys. The Bush administration has proposed a concrete plan that will reduce malpractice insurance rates, end the malpractice lawsuit lottery, reduce unfair malpractice litigation, and, by thus decreasing the number of good doctors forced to leave practice, improve medical access for the public at large.

Last month, we held a featured discussion between Ron Chusid, founder of Doctors for Kerry, and our own Ted Frank, a Bush supporter, which contributed to the debate on medical malpractice from each presidential candidate's perspective. This month, we're looking into medical malpractice once more. In lieu of a back-and-forth format, this month we're inviting comments from some leading thinkers on medical malpractice reform to discuss a new paper by Daniel Kessler of Stanford Business School, the Hoover Institute, and NBER, prepared for the Manhattan Institute (this site's host).

Professor Kessler, along with Mark McClellan (who now heads up Medicare), wrote the seminal study in 1996, "Do Doctors Practice Defensive Medicine." His new paper discusses how the U.S. malpractice system works, examines the empirical evidence both on the malpractice system as it exists and on various tort reform measures, and analyzes various policy approaches that have been suggested to deal with the problem.

We're expecting comments from other leaders including Philip K. Howard, the founder and chairman of Common Good and the author of The Death of Common Sense and Collapse of the Common Good; Dr. Richard Anderson, Chairman and CEO of the Doctors Company, the largest mutual (doctor-owned) medical malpractice insurer and author of an earlier Manhattan Institute study on medical malpractice; and "Syndey Smith," a/k/a MedPundit, a practicing physician who runs one of the most successful weblogs on health care issues.

I expect a wide-ranging and provocative discussion.

The attached essay reviews existing research on the US malpractice system. It has two objectives. The first objective is to summarize the consequences of the conventional tort-based approach to apportioning the costs of medical injuries. In brief:

-The number and dollar volume of malpractice claims has grown dramatically over the past 40 years.

-Injuries from medical care generally, and negligent medical care specifically, are surprisingly common.

-The direct costs of the malpractice system account for more than half of all malpractice compensation expenses.

-A small fraction of people injured by medical negligence receive compensation, and most people who receive compensation are not victims of
medical negligence.

-The indirect costs of the system, in terms of defensive medicine, are substantial. There is evidence of both "positive" and "negative" defensive medicine. Positive defensive medicine involves use of costly treatments that have minimal medical benefit to patients out of fear of liability. A typical example of positive defensive medicine is overuse of MRI or CT scans in patients that have headaches. Negative defensive medicine involves declining to supply care that has medical benefits. A typical example of negative defensive medicine is the refusal of some OB/GYNs to deliver babies, or to care for high-risk patients.

-Tort reforms that directly limit awards, like reasonable caps on noneconomic damages, reduce the malpractice pressure on doctors and hospitals, and in turn, reduce the prevalence and cost of defensive medicine—both positive and negative.

The second objective is to summarize what we know about alternative approaches to tort, and to propose areas for future research. Although a tort reforms are a good start, many researchers have pointed out that a tort-based system with reforms still has numerous shortcomings. In particular, I discuss the potential for a reformed system based on clinical practice guidelines; enterprise liability; binding alternative dispute resolution; and no-fault. Each of these alternatives offers advantages, but each also suffers from its own problems. For example, there is evidence that no-fault—the most radical of the alternatives—would lead to faster and more equitable compensation with lower transaction costs. But there is also evidence that no-fault could weaken incentives to take appropriate precaution, and evidence that no-fault is politically difficult to implement.

It is not possible to perfectly compensate victims of medical injury, induce physicians to take appropriate care, and control the costs of health care. Every system involves tradeoffs. Discussion, informed by research, is our best hope for reaching a social consensus on what to do.

The US Malpractice System

October 27, 2004 2:07 PM | No Comments

Daniel Kessler is to be congratulated for another important contribution to the literature central to the current malpractice insurance crisis in the United States.
He reaches three main conclusions:
1. Doctors practice defensive medicine
2. Tort reforms reduce the prevalence and cost of defensive medicine.
3. Alternative dispute resolution systems offer some promise.
I would like to comment on each of these undoubtedly correct observations.

Arguably, all medicine in the United States today is defensive in the sense that every physician is conscious of the potential for a malpractice suit arising from virtually any of the dozens of medical decisions, large and small, that must be made throughout the course of every single day. The responsibility for patients is neither new nor unwelcome, but the high probability of being accused of professional negligence is both. Moreover, today, malpractice litigation is not only based on direct personal accusations, the process drags on over many years, and research shows the outcome will be based more on sympathy for the patient�s disability than on the presence or absence of professional negligence. Such adverse judgments may cost a physician tens of thousands of dollars in increased malpractice premiums, or render him or her uninsurable, effectively ending their medical career. This pressure introduces a distorting lens into every aspect of medicine, resulting in excessive testing and the avoidance of high-risk patients.

We have more than a quarter century�s experience with effective medical tort reforms in California with the MICRA statutes. We know that a stable insurance market has been preserved and access to care has been uninterrupted since their enactment in 1975. Physicians have a choice of multiple insurance carriers at rates that a fraction of those in other large states across the country. This allows clinical decision making to occur without the imminent threat that an adverse medical outcome could end a doctor�s medical career.

No one, except the personal injury bar, can seriously argue that today�s system of medical jurisprudence is ideal, or even reasonable. More than 50% of premium dollars are appropriated by attorneys, 2% of plaintiffs and their contingency fee lawyers take 50% of all indemnity, and more than 70% of all claims are found to be without merit. Exploration of alternative systems is clearly necessary. Interestingly, many implicitly incorporate fundamental legal reforms--eliminating or reducing non-economic damages, eliminating or reducing contingency fees, and mandating periodic payments. The biggest challenge, noted by Mr. Kessler, is over-coming the special interests profiting from the present system.

Health Courts a Sensible Solution

November 1, 2004 12:13 PM

Our system of justice, which is supposed to provide incentives for good care and to compensate those that are injured by bad care, accomplishes neither goal. Instead, it makes it difficult for the injured to get compensation (mainly because of high costs of litigation), and, because of almost universal distust of modern justice by healthcare providers, drives up costs with defensive medicine and drives down quality by chilling professional interaction. The rising premiums, which reflect actuarial experience, drive doctors in certain specialties and areas out of business altogether.

Dan Kessler's piece summarizes the learning that demonstrate these effects, points out the need for further research, and most helpfully, analyzes how various reforms -- caps on damages, enterprise liability, alternative dispute resolution and no-fault proposals -- might fix these problems.

The conclusion that I reached from this work is that we need a system of justice that is 1) reliable: trust is key to avoid skewing of incentives towards defensive practices; 2)fault-based but not unduly punitive: providers need to know they will be reasonably accountable for their errors; 3) dramatically more efficient: justice that spends 55% on transaction costs is justice denied. Additional goals, not mentioned by Kessler, are incentives for transparency and to improve standards of care.

As Kessler suggests, none of the proposed reforms meets all, or even most, of these goals. That's why a growing coalition of patient advocates, providers and payers is coming together behind the idea of creating special administrative health courts -- fault-based, with neutral experts, written rulings, expedited proceedings (and lower attorneys' fees) and non-economic damage awards that are predictable, and based on the type of injury. The goal is to make justice in healthcare reliable. Only then can choices be made to align incentives with the common good. Both Sen. Frist and the Democratic Leadership Council have endorsed this type of major overhaul.

The debate over medical liability reform is now characterized by accusation and rancor. Dan Kessler brings the issues back to the realm of fact, and thus provides a foundation from which those who in good faith wish to reform the system can move forward.

Med-Mal: Health Policy's Rip Van Winkle

November 14, 2005 10:18 AM

Thanks for inviting me to discuss these issues with you. One disclaimer: This is my first experience in an online format, so I may not include many click-throughs. I have worked on medical liability � mainly malpractice but also managed care litigation and a small amount of product liability � off and on for about 15 years. Medical malpractice itself is a cyclical issue: I often call it the Rip van Winkle of health policy. It wakes up every decade or two when liability insurance premiums rise and someone declares a �crisis.� It is also Rip-like in that it slept through two decades of revolutionary change in health care from the 1980s to now, but less Rip-like in that today�s townspeople don�t recognize how outdated the established debate has become. More about that later, no doubt.

I have been living and breathing malpractice research for three years. In early 2002, when the current crisis was first being recognized, The Pew Charitable Trusts asked me to direct a research and communication program called the Project on Medical Liability in Pennsylvania (where Pew has its headquarters) that would evaluate the medical liability situation there and nationally. The project�s work, which involved more than two dozen researchers and produced about an equal number of publications, attempted to shed light on four key issues affecting Pennsylvania and many other states, issues I hope we will discuss this week:

� Access to health care in a malpractice crisis
� Patient safety and quality of care
� Capping damages in malpractice cases
� Using public funds for malpractice insurance

The project finished this fall, though there are still a few peer-reviewed articles yet to appear, plus a book that Cambridge University Press will publish early next year.

I can think of two reasons why Pew might have asked me to head their project. First, nobody else with solid academic credentials in malpractice policy wanted to do it. Academics who worked on the issue during the 1970s crisis came up with many good ideas, but the political stakeholders pretty much ignored them. Ditto in the 1980s crisis. Eventually, most people stop hitting their heads against brick walls. I had only hit my head against a malpractice brick wall once � in 1993 in connection with the proposal to subject managed care plans to �enterprise liability� as part of national health reform. I thought I had more to contribute. I�m also an optimist by nature. And I have a hard head.

Second, I am not particularly interested in medical liability for its own sake. I am a law professor at Columbia (visiting this year at the University of Texas), and certainly want lawyers to do a good job for their clients and for society. For the record, I was a large-firm lawyer for five years, working mainly on securities transactions and corporate acquisitions. At Columbia, I teach health law, regulatory theory, professional responsibility, and antitrust. I consider myself a sophisticated observer of the legal profession, and I am an avid student of professional institutions generally. So law matters deeply to me.

But I am also a physician and health policy researcher, and my interest in medical liability relates primarily to how liability affects the American health care system. If access to health care improves as the result of a reform, I�m for it. If quality improves, I�m for it. If medical costs are associated with good medical value, I�m for it. If doctors (or other health professionals) and patients share a compassionate, durable, trusting, mutually beneficial relationship, I�m for it. But those are my issues, not whether tort law or trial lawyers are good or bad for America in some overall social or economic sense.

My overarching desire is to have medical liability debated as a health policy problem and to have reforms adopted that further those goals (access, quality, cost). If that happens, I will leave malpractice research behind as a major aspect of my professional work, and will eagerly get back to more pressing problems in national health policy. Number one on that list, I should add, is access to health care and health insurance for nearly 50 million Americans. That is serious. Very serious.

Enter your report on health care as the third installment of the Manhattan Institute�s �Trial Lawyers Inc.� series (clever title). We�re both mature scholars � though you can still plausibly deny being middle-aged, which I cannot � but I�m afraid we�re speaking different languages. To me, one of the greatest frustrations with studying medical liability these days is that the general debate over (non-medical) tort reform has overwhelmed the health policy significance of medical liability. To health policy specialists, the medical liability system is deeply flawed in all three component parts: patient safety, liability insurance, and legal process. To general tort reformers, the whole ballgame is legal process. Small wonder that their main solution is capping damages and attorney fees or, for the more progressive contingent, chartering expert tribunals. What else would translate easily from medical malpractice to other tort reform arenas?

Physicians usually don�t notice this, because they have a long-standing, completely understandable fear and loathing of malpractice litigation. As Jay Gold pointed out years ago in an article that never got the attention it deserves, it is a difficult problem to hold experts accountable to non-experts (specialized courts being a compromise approach), and protracted adversarial litigation isn�t an appealing solution from the defendant�s perspective � or, frankly, from the plaintiff�s. Blunt deterrents to litigation such as noneconomic damage caps and the like � which I typically shorthand as MICRA-style reforms because those measures were at the heart of California�s Medical Injury Compensation Reform Act of 1975 � therefore are firmly entrenched medical lore. Those of us in the health policy community would say that doctors� belief in MICRA is no better grounded in fact than the many equally established clinical practices that have proved ineffective over the years. But shaking the belief is hard.

Faith in MICRA is also easily exploited by the aforementioned general tort reformers. Medical malpractice is a terrific poster child for general tort reform. It offers grassroots activism from a large, well-respected contingent of medical professionals. It provokes public fears about losing access to health care (did I mention that access to health care is the most important health policy problem?). It can be cast as a morality play: �caring physicians� versus �rapacious lawyers.� And it offers a variety of sympathetic anecdotes, images, and narratives � though similar opportunities are available to general tort defenders as well (including introducing new morality players such as �greedy insurers� and �incompetent doctors�). Once the truly well-funded lobbies on both sides of the general tort reform debate mobilize � as they have during the current malpractice crisis � politicians and the public see only two options: MICRA-style reforms or keeping the current litigation system.

Your report toes this line and strongly urges MICRA-style reforms � though I notice, to your credit, that you don�t obsess over them and that you also support �medical courts� as an example of a �comprehensive� solution. So to politicians and the public, your report is mainstream. But guess what? The report would be a lone voice � far out of the mainstream � in any gathering of health policy experts interested in medical malpractice. The health policy community has reached substantial consensus on malpractice reform. Most of us believe in incremental demonstrations of various innovations that, over time, would move most malpractice cases out of the courts while doing much more to prevent medical errors, offer timely (and, indeed, capped) compensation for injury, and avoid the emotional injuries that litigation or its threat inflicts on both patients and health care providers. A minority of health policy experts remains uncomfortable with formal damage caps, even when accompanied by other measures to improve access to compensation, quality of care, or administrative efficiency. I know nobody � repeat, nobody � in my professional community who favors MICRA-style reform as a stand-alone solution.

I should add that you and I have many points of agreement, some factual and some philosophical. Regarding the former, I agree that conventional malpractice litigation serves society poorly. As examples of the latter, I generally favor market competitive solutions to social problems, and try to stay alert to the perverse incentives that litigation and regulation create in many contexts. (I might quarrel with most of your rhetorical flourishes and many of your data points, but we can go into those as needed in future posts). We are also likely to have much more in common with respect to drug product liability and managed care litigation, and somewhat more in common with respect to nursing home liability. These too can emerge in our continued conversation.

Finally, I�ll put you on notice that I have another set of fundamental issues to air with you � information and argument I expected to be central to the Trial Lawyers, Inc. project but that was absent from the health care installment. However, I�ll save that for an opportune moment.

Looking forward to your reply,

Bill

Points of Agreement

November 14, 2005 1:50 PM

Bill,

I'd like to thank you very much for offering to participate in our PointOfLaw.com featured discussion series. We're excited to have someone of your stature here, and your deep knowledge and understanding of health care policy and litigation should give our readers a lot to think about.

To start with, I'd like to reach out on what I feel are significant points of agreement. First, I think it goes without saying that we both agree that American health care, while far better than a generation ago, could be substantially reformed.

Second, I think we agree that the legal process in the U.S. needs some reform as a component of overall health policy reform (you say as much: "I agree that conventional malpractice litigation serves society poorly").

Third, I agree with you that health policy is a vastly complicated subject and that the "legal process" is hardly the only factor important to health care quality, innovation, or access. While I do believe firmly that litigation matters�-and matters a lot�-it's but one of the panoply of factors that make American health care suboptimal. The Manhattan Institute's agenda reflects that fact. Over in the Center for Medical Progress, we have three senior fellows looking at various aspects of health policy:


Bob Goldberg, who directs that Center, spends a lot of time thinking about how government regulation affects medical innovation; he chairs a task force that�s exploring how the Food and Drug Administration should reform for the 21st century.
Regina Herzlinger, a Harvard professor, looks at the problems created by the disconnect between health purchasing decisions and the consumer; her Market-Driven Health Care defined the agenda, and her Consumer-Driven Health Care is a tome of information on this debate.
David Gratzer, a practicing Canadian physician, looks at government sponsorship and control of health care, from Medicare and Medicaid to price controls; his Code Blue: Reviving Canada's Health Care System exposed many of the myths about Canada's socialized health care system.

Folks who are interested in many of these health care issues should check out our companion website, Medical Progress Today, which every week has tons of new information on all aspects of health policy.

But what the Center for Legal Policy looks at is litigation. That's my area, that's what we focus on at PointOfLaw.com, and that's what the Trial Lawyers, Inc. series is about. I think that the role of litigation in health care is sufficiently important in its own right to deserve in-depth coverage�-indeed, far more coverage than we were able to provide in our necessarily short, user-friendly report. The report isn't designed to be a comprehensive look at American health policy but rather a comprehensive overview of lawyers' business strategy for litigating in the health care sector, and the major effects of that litigation.

My fourth major point of agreement with you is that one-size-fits-all caps on noneconomic damages are not a holistic solution that would ameliorate all the negative effects American litigation has on the quality, accessibility, and improvement over time of American health care. I don't think Trial Lawyers, Inc. suggests otherwise. As you graciously note, "you don�t obsess over [MICRA-style reforms and] you also support 'medical courts' as an example of a 'comprehensive' solution."

But you also go on to say: "politicians and the public see only two options: MICRA-style reforms or keeping the current litigation system. Your report toes this line and strongly urges MICRA-style reforms . . . ." I think that�s really a misreading of Trial Lawyers, Inc.: Health Care. I never mention damage caps in my Message from the Director, nor does the report mention them in its Introduction. The report does mention damage caps in the medical-malpractice section in the following contexts: (1) in pointing out that Park Ridge, Illinois physicians who relocated to Wisconsin after their premiums jumped to $500,000 were likely attracted by Wisconsin�s then-low malpractice insurance rates, $50,000�and suggesting that the premium difference was likely due in part to Wisconsin�s then-extant damage caps; (2) in pointing out that "Texas Medical Liability Trust lowered its premiums 12 percent the first year and another 5 percent the second" following that state�s adoption of med-mal damage caps; and (3) in pointing out that lawyers have challenged caps in various states as unconstitutional. We also allude to this litigation strategy in the public relations section, in pointing to Wisconsin�s noteworthy ruling this summer finding the state's damage caps unconstitutional.

Apart from those references, the only place the 20 substantive pages in the Trial Lawyers, Inc.: Health Care report mentions damage caps is in the 2-page Outlook and Conclusion. That section of the report does give significant treatment to MICRA-style reforms, since they constitute a significant portion of state-level reforms in addition to a major part of the President�s preferred reform, the HEALTH Act. And yes, Trial Lawyers, Inc. does give favorable treatment to state damage caps in the following context:

In all, 27 states now limit noneconomic damages in medical-liability cases.

While states' laws vary in their effectiveness, in those states where damage caps and other broad reforms have passed, malpractice premiums have generally come down and doctors' shingles have stayed up. Since Texas legislators imposed a $250,000 limit on noneconomic damages in 2003, malpractice suits have dropped by half, and the five largest insurers have announced rate cuts that will save doctors and hospitals $50 million a year. An Agency for Healthcare Research and Quality study found that rural counties in states with such caps saw a 3.2 percent rise in doctors per capita. Over the long run, medical-malpractice reforms have been highly successful: since California passed its $250,000 noneconomic damages cap in 1975, its medical-malpractice premiums have risen "only" 245 percent, versus 750 percent nationwide.

So you�re right if you mean to suggest that I believe the following: noneconomic damage caps, all else being equal, reduce medical malpractice insurance costs and increase the supply of doctors/hospitals/services that are limited, on the margin, by such costs. I think that we agree on that point, too, assuming you were accurately quoted by The New York Times this winter: "There is a strong consensus among people who have really studied the issue that caps on damages would tend to keep costs down and make liability insurance more affordable for doctors."

That's really the only claim vis-�-vis damage caps that Trial Lawyers, Inc.: Health Care makes. And the report strongly suggests that a "more comprehensive" reform is needed, including federal preemption of state common law tort claims regulated by the FDA and, as you acknowledge, health courts or other experimental state reforms to better align medical malpractice liability with its policy objectives. The treatment of such reforms is sparse precisely because, as noted before, Trial Lawyers, Inc. was never designed to be a policy document but rather to show the business model of the plaintiffs' bar�-and if you don't think that there's a business model underlying, e.g., Dickie Scruggs's lawsuits against non-profit hospitals (that Judge Loretta Preska described as "orchestrated assault on scores of non-profit hospitals, necessitating the expenditure of those hospitals' scarce resources to beat back meritless legal claims"); or the class-action civil RICO suits against HMOs; or most drug and medical device mass tort litigation; or certain segments of the medical malpractice bar, including the firms that score exceptionally big wins for dubious infant cerebral palsy claims�-then I'm happy to debate the point. Trial Lawyers, Inc. is also designed to describe the cost of health care litigation.

And assessing that cost is, perhaps, where we differ, which perhaps is why we come to somewhat different positions on the appropriateness of damage caps. You make the following claim: "To health policy specialists, the medical liability system is deeply flawed in all three component parts: patient safety, liability insurance, and legal process. To general tort reformers, the whole ballgame is legal process." But I don't think that caricature is right. We claim that problems in the legal process, while not the sole variable for patient safety, adversely affect patient safety and drive up the cost of liability insurance.

You point to three different variables of interest: quality, access, and cost. I'd add to that list innovation, because the cost and quality of health care over time should matter deeply to us as a society, not just its static cost and quality today. And I'd also note that your categories are by no means mutually exclusive. Higher costs mean lower access, and thus lower quality.

I and other critics of the current legal system argue that our status quo litigation system lowers the quality of and access to health care today, as well as retards innovations that will improve health care over time. Patient safety thus suffers. What's the basis for this claim? Well, in a nutshell, if the status quo litigation system does a poor job of discouraging mistakes�-and I think the evidence supports that proposition, but we can discuss it�-and it discourages behaviors that make us safer, we�re less safe.

The important point here is that lawsuits in the health care field aren't like traditional torts, which provide compensation for injuries caused by accidents from strangers (or, more precisely, individuals who aren't contractually related). The key feature of traditional torts is that the behaviors lawsuits discourage, in general, make us less safe. Carrying wild animals, detonating explosives, discharging firearms, building pits and potholes, driving automobiles�-while there may be a place for each, we're generally safer as a society if people do less of these behaviors. But performing brain surgery, delivering babies, and developing life-saving drugs and devices are precisely the opposite: we're generally less safe as a society if we do these activities less.

Therein lies the rub. If our tort system isn't doing in practice what it's supposed to do in theory--i.e., providing appropriate incentives for harmful behaviors--and if it�s instead merely taxing useful behaviors, then it's a big problem, and lowering that tax in and of itself is salutary.

And that brings us back to damage caps, and the problem with the other statement you made to The New York Times: "there is a universal consensus that caps would do absolutely nothing to reduce medical errors or to compensate injured patients. If anything, caps on damages would make those problems worse." Leaving the compensation question to the side, I would strongly dispute that there�s a "universal consensus that caps would do absolutely nothing to reduce medical errors." My colleague Walter Olson responded, I think effectively:

That's a pithy sound bite, but it's rather misleading as regards the problem of "medical errors". Advocates of damage limits have adduced considerable evidence that the prospect of unlimited liability can seriously compromise the quality of medicine by 1) curtailing providers' availability and 2) encouraging resort to defensive medicine. If trauma centers and rural ob/gyns close their doors, and if doctors prescribe unnecessary antibiotics, CAT scans and caesarean sections for fear they will be blamed if something goes wrong, the number of "medical errors" may not be higher (depending on how those are defined), but the quality of care will nonetheless have suffered. Assuming for the sake of argument that damage caps reduce doctors' incentive to be careful, the question then becomes whether this effect outweighs or does not outweigh the benefits to the quality of patient care of improving availability and reducing the scope of defensive medicine. Notwithstanding the conclusion to which a casual reader might jump from Prof. Sage's comments, there is assuredly no "universal consensus" as to where this balance comes out.

I think he's right. Are damage caps the comprehensive solution that medical malpractice reform�-not to mention broader health care liability reform�-deserves? No. But, as you admit, they are efficacious as to cost, and if in fact such caps don't reduce (and perhaps improve) health care quality and access, then they�re unambiguously socially beneficial (though undeniably against the interests of the trial bar).

So while I don't think that med-mal damage caps are a panacea by any stretch, to me the weight of the evidence suggests that they're a good idea. Merely because an idea isn't the whole ball-of-wax doesn't mean we should oppose it. For instance, the Class Action Fairness Act is hardly sufficient to fix all the problems with class action lawsuit abuse (see George Priest's discussion here). But it should help the class action magnet court problem, which the Manhattan Institute Center for Legal Policy helped to document here, here, here, and here. So it's a step in the right direction.

I feel the same way about med-mal noneconomic damage caps (at least at the state level). That doesn't preclude my supporting other, more comprehensive reforms�-and I welcome discussion of some of the ideas you've developed in the Pew project and elsewhere. But you don't provide an objection to damage caps in principle, and you haven't persuaded me that damage caps would make matters worse, not better. In an intellectual policy discourse, I don't think it's appropriate to say something along the lines of "policy X is good�-but policy Y is better; and I'd support policy X only in combination with policy Y." Such horse-trading may be appropriate for politicians, but honest intellectual reflection should dictate that we say something more along the lines of "policies X, Y, and Z are all improvements on the status quo." Now, it's certainly legitimate to say that policy Y is the best; or to say that policy X or Z is actually harmful; or to say that policy X is so marginal, relative to policy Y, that we shouldn't devote much time to it and should try to shift the discourse toward policy Y instead.

The final approach is, I think, where you're coming down. I'm still not persuaded that policy X, i.e., damage caps, is really that marginal�-and I don't think that appeals to authority (e.g., "the health policy community") will do much to persuade me. Indeed, it's interesting that the health policy community, as you characterize it, hasn't had more traction for its ideas�-and it may be worthwhile to explore the ideas and ponder why that is.

So I've gone on for far longer than I'd expected, but I think I've at least framed the discussion from my perspective, and identified a lot of common ground. The topic is vast, and we still have a lot to cover. I look forward to your response�-and again, I'd like to thank you for your insights.

Jim

Tort reform: A foolish consistency

November 16, 2005 9:35 AM

I remember learning in high school that diplomacy consists of saying nasty things in nice ways. Your first post treated my questions about the Trial Lawyers, Inc. project quite diplomatically. Perhaps you should be less diplomatic from now on. Then I might have a clearer idea of why you are so insistent about eliminating personal injury claims from medical care without putting in place a superior alternative, or why you think some shadowy conspiracy of trial lawyers is substantially responsible for the current failings of the American health care system and, moreover, is going to cripple that $2 trillion annual enterprise unless restrained by tort reform legislation.

Why be so coy in response to my pointing out that you favor damage caps and blame the legal system? Why deny that caps are your preferred medical malpractice reform while, in the course of that denial, rehashing all your arguments about the virtues of damage caps? Why refer me to your organization�s work on health care when your leading example consists of having federal food and drug regulation preempt (i.e., eliminate) state personal injury claims? The introductory paragraph to your report�s section on malpractice is much more direct:

�While several states have been successful in enacting substantial reforms, the American Medical Association continues to list 20 states �in crisis� over malpractice litigation. Overall, then, these efforts have yet to derail the med-mal gravy train that has been one of Trial Lawyers, Inc�s longest-running and most lucrative business lines.�

What are these measures you consider successful, substantial reforms? Golly, they�re damage caps and other MICRA-style reforms, not administrative compensation systems, enterprise liability demonstrations, or error disclosure and early mediation programs. What states does the AMA consider �in crisis�? Gosh, it�s hard to know, because the AMA�s definition changes, but usually the answer is states that haven�t yet enacted MICRA-style tort reforms. What is the point of these reforms? Gee whiz, it sure seems like they�re designed to discourage personal injury claims.

Another quotation I remember from high school was Emerson�s: �A foolish consistency is the hobgoblin of little minds.� Everything in your Trial Lawyers, Inc. report on health care, and everything in your post to me, is painstakingly �on message.� As you admit, your report �was never designed to be a policy document.� Indeed, it�s a political document � something I was truly disappointed to discover, and something I wish I had known before accepting your invitation to comment on it publicly.

Well, I have a �message� too, though not a political one. Medical malpractice reform should be about health care, not about lawyers. Medical liability expanded during the late 20th century because of the tremendous success of modern medicine, not its failure. And I don�t think that litigation realistically comes within an order of magnitude of threatening medicine�s success in the future. Liability is never truly �unlimited,� whether or not damages are capped. Rather, liability expands incrementally as medical care improves, costs of receiving services and remediating injuries rise, and care delivery processes become industrialized. In the late 1980s, now UCLA law professor Mark Grady argued persuasively that negligence law is primarily a response to technologic progress. (You might know Prof. Grady � he used to be Dean and Chairman of the Law and Economics Center at George Mason University School of Law, hardly a front for the trial bar). I believe that periodic crises in availability and affordability of physicians� malpractice insurance largely reflect the failure of cyclical insurance markets � at least as traditionally structured and regulated � to keep pace with industrial change in medicine.

I make sure to convey this message loudly whenever the opportunity presents, mainly because health system change is an uncomfortable truth for both partisan camps battling over lawyers and tort reform. However, I think it is impossible to have a meaningful discussion of public policy without occasionally getting off message to acknowledge complexity or display common sense. For example, you take me to task for telling a New York Times reporter at some point that caps should reduce liability insurance premiums but not being a fan of caps. Incidentally, I�m flattered that Walter Olson would bother to comment on my comment � I don�t keep a scrapbook of press clippings so I never knew he had.

There�s nothing inconsistent about those positions, although if I were a pro-tort advocate rather than an academic I would undoubtedly be attacked for straying from my partisan message. Malpractice insurance is third-party coverage; one buys it only if one thinks one will be sued and held liable. So it�s pretty obvious that if the chance of being sued or the amount of liability drops, so should the premium in anything approaching a competitive market. For the same reason, it�s pretty obvious that payouts, not investment income, will be the principal driver of premiums � although the long delays involved in resolving malpractice claims make investments a non-trivial consideration. But that doesn�t mean that caps will lower premiums quickly or seamlessly, that enacting caps is the most cost-effective way to lower premiums, that caps won�t reduce safety incentives in some situations, or that the redistribution that caps accomplish is socially desirable. On the last point, I�m always surprised that tort reformers, despite their business allegiances, fail to grasp the basic economic fact that, administrative costs aside, a reduction in insurance premiums unaccompanied by a reduction in insurable events is merely a wealth transfer, not a net savings to society.

I think you fairly characterize my position as being that caps are too marginal to bother with, at least as a stand-alone measure. On the other hand, I don�t think you are being honest with yourself, much less your readers, to reject issues of political will and political feasibility as intellectually irrelevant to public policy � to my eye, it seems that you stay so faithfully on message mainly to keep your own political coalition together.

But let me put it into plainer English for you. Here�s what I wrote about caps in 2003: �If Congress enacts MICRA-style caps on damages, no national tragedy will follow. But neither will any lasting benefit to health care be achieved. The same will be true if Congress fails to do anything after prolonged political debate. � Government will simply have missed a significant opportunity for truly productive change.�

Why do I reach this conclusion? Because in the 1970s and 1980s crises, physicians framed the malpractice problem as frivolous lawsuits and excessive awards. On this account, caps seemed a reasonable solution. But we know a lot more about both the health care system and the malpractice system, including its insurance component today than twenty years ago. As a result, we have a longer list of problems to address, and significant tensions among them (I�ll leave it to you to defend why the longer list is ignored by partisan tort reformers):

1. Compensation for avoidable injury is inadequate.

I can�t imagine how flat caps on damages would help get more injuries fairly compensated in conventional litigation, or would fail to harm the most severely injured. But perhaps you see possibilities I don�t.

2. Too many avoidable errors occur.

Again, one would think that capping damages alone would do nothing to reduce errors, and might increase errors by removing financial incentives for safety improvement.

Now, I can almost see the saliva dripping onto your keyboard as you mouth �defensive medicine.� I agree that defensive medicine matters; in fact, I co-authored the most recent empirical study of defensive medicine to appear in the health policy literature (JAMA, June 1, 2005). Defensive medicine is important for more than the aggregate-health-care-cost arguments intended to sustain political momentum for tort reform between crisis periods even though physicians have easy access to cheap malpractice insurance. Defensive medicine is important during malpractice crises because physicians who fear an imminent loss of affordable coverage treat patients worse as a result � not only engaging in wasteful �assurance behavior� such as expensive diagnostic testing, but also performing unnecessary invasive procedures that plausibly increase risks of physical harm and avoiding types of medical care and types of patients they consider unduly risky, even when those patients need services. But MICRA-style reforms are tangential to defensive medicine. The deeper causes of defensive practice are clinical uncertainty, fragmented medical practice, and a malpractice insurance system that is as isolating and unforgiving in bad economic times as it is oblivious to health care quality in good economic times.

3. Litigation is too slow, too costly, too uncertain, and too unpleasant.

Physicians and patients should be intimates, treating each other with respect, concern, and compassion. Third-party liability coverage turns them into strangers, and litigation turns them into adversaries. Caps do not help. At most, MICRA results in somewhat less of a bad process, not a better process. Ask any doctor in California.

4. Premiums for primary coverage are too volatile and, for some physicians, too expensive.

This is an insurance market problem. Caps help, but very bluntly. Why not address risk-pooling problems and the clinical bottlenecks they create during crisis periods directly? For example, try revamping specialty- and geography-based rating practices for physician liability coverage and moving more of the market into stable, diversified institutional settings?

5. Excess coverage and reinsurance are too costly for hospitals and other institutions.

The biggest insurance problem during the current malpractice crisis is high-dollar coverage for institutional defendants, say $10 million or more per claim. Even in the most severe malpractice crisis, hospitals can handle smaller cases just fine (a $250,000 cap is a rallying cry, not a policy prescription, and is irrelevant once one looks beyond individual physician defendants and the narrowly exposed liability carriers that insure them). Caps might help in the large cases, though again very bluntly, but not when applied only to non-economic damages as their proponents � bowing to political reality � generally urge. Economic damages, not non-economic damages, are the principal source of financial exposure in the largest malpractice cases � usually involving newborns or children who have suffered lifelong debilitating injury.

Here�s an idea for a better reform: neutral, court-appointed experts to estimate survival, lost income, and future medical needs. Physicians obsess over the credentials of clinical experts testifying as to whether they are good or bad doctors because their professional reputations are on the line. However, it�s hired-gun �economic expert witnesses� who really affect claim outcomes, but nobody in the tort reform community seems to care.

That�s my list. I�ll be interested in your response. I�d prefer in our next installment to go into a couple of specific issues of your choosing in greater depth. So far we have mainly talked past each other. A second approach would be to start discussing a curious assertion you made about the Trial Lawyer�s Inc. Health Care report: that it tries to �show the business model of the plaintiff�s bar.� I would be fascinated to learn more about that business model, and in fact I expected to see a detailed analysis of it in the report. But, alas, that dog didn�t bark.

Bill

PS: If you want a sound-bite to debate, try this one: �The best malpractice reform is universal health coverage.�

What a Difference a Day Makes

November 17, 2005 9:10 AM

Bill,

In our Point of Law featured discussions, we always strive for civility, and I�ll continue to endeavor to do so. You may think my initial post overly �diplomatic� � in your phraseology, �saying nasty things in nice ways.� I don�t really think anything I said was nasty, implicitly or explicitly. I merely have a difference of opinion with you, and I took issue with your characterization of the Trial Lawyers, Inc.: Health Care report vis-�-vis its treatment of med-mal damage caps, as well as what I felt was a caricature of the tort reform movement as a whole � and of my and the Manhattan Institute�s role in it. As to who�s being nasty, I�ll let our readers decide.

In any event, you seem to be frustrated that I�m too �on message� � really, for not saying what you�d want or expect me to say (E.g., �Why be so coy in response to my pointing out that you favor damage caps and blame the legal system? Why deny that caps are your preferred medical malpractice reform while, in the course of that denial, rehashing all your arguments about the virtues of damage caps?�). But I don�t think I was coy: I do favor damage caps, at least at the state level, and my initial post said so. Still, I don�t think they�re the only or even the best reform � your beliefs or suggestions to the contrary notwithstanding.

Why did I give the issue of damage caps so much attention in my initial post, if they�re not my �preferred medical malpractice reform�? Because I think you unfairly characterized the tort reform debate as a simple dichotomy between �tort reformers� who favor damage caps and lawyers who want to defend the status quo, and because you try to fit Trial Lawyers, Inc.: Health Care into that box. You mentioned MICRA six separate times in your opening post. I think that you were basically attacking a straw man � saying that tort reform was just about damage caps, and that Trial Lawyers, Inc.: Health Care was all about support for damage caps: �But guess what? The report would be a lone voice � far out of the mainstream � in any gathering of health policy experts interested in medical malpractice. . . . I know nobody � repeat, nobody � in my professional community who favors MICRA-style reform as a stand-alone solution.�

But I�ve got a guess what for you, too: damage caps aren�t at the core of what most of the tort reform people I talk with on a daily basis think about, either. Damage caps are a significant component of a lot of tort reform legislative activity, but they�re far from the only tort reform policy idea out there, and I don�t know anyone who supports them as a �stand-alone solution� either. The reason damage caps get so much public attention, in my view, is precisely that the plaintiffs� bar and its supporters want to define tort reform down to being all about damage caps. It makes for good soundbites: �they�re taking away your rights,� �it�s all about protecting greedy corporations who injure you,� �what about the woman who loses her breasts through a doctor�s incompetence?� The other major legislative tort reforms out there that actually have been enacted � including those that deal with prejudgment interest, collateral source rules, caps on contingency fees, periodic payments, joint and several liability, or statutes of limitations, each of which you use as variables in your own June 2005 JAMA article that you co-authored with Dan Kessler and David Becker � aren�t quite as easily adapted to this line of attack.

Another guess what: far from advancing an agenda to push damage caps to the exclusion of other policy alternatives, the Manhattan Institute has sponsored writings and programs that do precisely the opposite. We�ve had Phil Howard of Common Good here to speak, twice, on his idea for medical courts (and we�re having another dinner with Phil and other opinion makers this very evening, in Washington, D.C.). Indeed, Phil Howard launched Common Good at a Manhattan Institute luncheon, featuring him and Johns Hopkins�s William Brody, in March 2003. On the issue of no-fault administrative compensation schemes, we hosted a large conference in Washington, D.C. this January. The focus was the 9/11 Compensation Fund � highlighted by a keynote address from the Fund�s administrator, Ken Feinberg � but a clear undercurrent was the adaptability of no-fault approaches to health care. Dan Troy, former counsel to the FDA, was on one of our two panels and spoke on the issue as it relates to drug liability. Finally, last fall the Center for Legal Policy put forth a working paper by Dan Kessler � your JAMA co-author � with commentary in a featured discussion here at Point of Law including, yes, Phil Howard. Kessler�s paper summarized the empirical evidence on various traditional tort reforms (the weight of the empirical evidence does indeed clearly support damage caps and other traditional tort reforms � as does your more recent JAMA article that your co-authored with Dan). But Kessler went further to explore various alternative reforms: guidelines-based systems, enterprise liability, binding alternative dispute resolution, and no-fault systems.

Over the almost three years since I�ve been at MI, we�ve sponsored only one event or publication that could plausibly be construed as focusing on damage caps. And even that event wasn�t really: two leading New York physicians spoke here on the crisis in obstetrics in the state driven by liability. On a panel with them: Dan Kessler, summarizing the empirical evidence. The luncheon keynote speaker: Phil Howard, talking about medical courts. Although the doctors tended to focus on caps as a preferred policy outcome, they mostly chronicled the problem, not the solution.

Characterizing my position, or that of MI, as be all about damage caps simply isn�t accurate. I think they�re a good idea in that they�re proven to be effective. I think states should adopt them. But they�re far from a holistic solution, and I � and most people who think seriously about (rather than lobby for) tort reform � agree with you strongly that we should look for more comprehensive solutions.

So forgive me for being a bit skeptical: defining tort reform down to being all about damage caps is the primary tactic of the trial bar, and your initial post � and your second post � fit well within that paradigm. Your initial post basically said, as I read it: (1) I care about health policy outcomes, not tort law per se; (2) tort reformers only care about legal process, and the tort reform debate is just about people who�re for damage caps and those who aren�t; and (3) we sophisticated folks in the �health policy community� have a much deeper, more nuanced view that you simple tort reform folks can�t or won�t appreciate. My response was guided by that reading, so I freely admitted that there were tons of very important health policy issues outside the scope of tort law, which I wouldn�t be discussing; that your (and the trial bar�s) caricature of the tort reform debate was highly simplistic; and that while tort law is certainly not the only variable at play in improving U.S. health policy, that I thought it plays a very important part, and in fact intersects with all variables of interest to overall health policy, namely cost, access, quality, and innovation.

Just as I think your (and the trial lawyers�) caricature of the tort reform debate as being all about damage caps is inaccurate, I don�t think that support for damage caps is the main point of, or takeaway from, Trial Lawyers, Inc.: Health Care. The report is designed to speak to a general audience � reporters, political staffers, and community leaders � not to academics, policy wonks, or practicing lawyers; and it�s designed to show just how the trial bar operates, increasingly, as a very sophisticated business, how that business is targeting all segments of the U.S. health care industry, and how American health suffers as a result � not to develop or discuss the best legal reform ideas out there. As I�ve described at length, we do that in other venues.

Do I, or the report, �blame the legal system�? Yes � inasmuch as I think the legal system exacts a staggering, often unappreciated cost on U.S. health care; no, if you mean that I, or the report, blame the legal system for all of America�s health care system failings � far from it, which is why I referenced the other health care work MI is doing, with which I generally agree, though the areas aren�t my specialties.

Is the Trial Lawyers, Inc.: Health Care report �a political document,� as you suggest? Well, I suppose that too depends on what you mean. Do we want politicians � and voters � to pay attention to the report? Sure, because the Manhattan Institute is all about �turning intellect into influence.� We aren�t about publishing dry articles in academic journals that nobody reads. And compared with empirical studies or policy documents, Trial Lawyers, Inc. is much more intended to reach a lay audience. But no, the report is not �political� if you mean partisan. In the government/public relations section of the report, we specifically explore how trial lawyers have worked to influence both parties. ATLA and major plaintiffs� firms do give overwhelmingly to the Democrats � and in the last presidential cycle were at the center of the party�s fundraising apparatus � so any discussion of how the plaintiffs� bar works to influence politics would have been lacking indeed if it didn�t point to that fact. But we also gave significant attention to Republicans with ties to the trial bar � from Judiciary Committee Chairman Arlen Specter to former trial lawyers Lindsey Graham and Mel Martinez to former Congressman and media personality Joe Scarborough. (Believe me, I got phone calls and emails from those in the �tort reform community� to complain about our having included some of the folks we highlighted in the report.)

Our regular readers on Point of Law and the followers of my and Walter Olson�s work over time know well that we take issue with both parties on quite a regular basis. Last fall, we scheduled a featured discussion in which Ted Frank, now at the American Enterprise Institute, and Ron Chusid, of Doctors for Kerry, debated the merits of the Bush and Kerry approaches to med-mal reform. I think that Ted won the debate � and that Chusid took the all-to-familiar tack of reducing the issue to damage caps, and recycling trial lawyer talking points against them � but you can decide for yourself. The point is that we presented both points of view.

OK, enough about all that. We agree that damage caps aren�t a holistic solution � we merely differ on whether they should be supported at all � so let�s get down to the business of trying to explore other facets of the problem, on the way toward looking at other reform ideas. I�ll begin with problem definition. In your most recent post, you say the following:

Medical liability expanded during the late 20th century because of the tremendous success of modern medicine, not its failure. . . . Liability is never truly �unlimited,� whether or not damages are capped. Rather, liability expands incrementally as medical care improves, costs of receiving services and remediating injuries rise, and care delivery processes become industrialized. In the late 1980s, now UCLA law professor Mark Grady argued persuasively that negligence law is primarily a response to technologic progress. (You might know Prof. Grady � he used to be Dean and Chairman of the Law and Economics Center at George Mason University School of Law, hardly a front for the trial bar).

In general, well put, and an important caveat to the debate. I�m familiar with Professor Grady�s work � his seminal article Are People Negligent? Technology, Nondurable Precautions, and the Medical Malpractice Explosion, 82 Nw. U. L. Rev. 293 (1988) and subsequent follow-ups � and I think his point is very well taken, if perhaps overstated. Simply put, in medical malpractice law, technological change can drive new types of litigation precisely because the costs of failing to use the new technology can result in death, whereas people would have died regardless before the technology was in place. That�s important to keep in mind, as is the fact that the explosion in observable health care costs is also to a significant degree technology (and division-of-labor) driven: a very strong case can be made that health care costs, rightly understood, have fallen dramatically in the last fifty years. My colleague Peter Huber made just such a claim last year in Forbes:

The cost of health care in the U.S. has been declining steadily for the last 50 years. It will decline faster still in the next 50. All of the doleful commentary about mushrooming costs and budget-busting programs ignores the principal economic costs of illness, which are falling fast, and the science of pharmacology, which is transforming the economics of health care.

By far the largest economic cost of illness is lowered labor productivity. Sick people can't work, and when adults die in their prime, they take all their intelligence, skills and initiative with them. Until recently, the cost of illness among children and the elderly was also shouldered mainly by the healthy adults who devoted countless hours to their care. Such costs aren't reflected in revenues to doctors or hospitals, still less in federal insurance programs. They are felt in lost corporate profits, lower wages and, for many women, tireless but entirely off-budget toil in the home.

Several developments radically changed this economic calculus in the second half of the 20th century. Vaccines all but eradicated many of the most common childhood diseases and substantially curbed infectious disease among adults as well. However much it cost to develop the whooping cough vaccine or to distribute it free to families who couldn't afford it, the cost must surely have been dwarfed by the economic gains that came from freeing up mothers to engage in other pursuits. Antibiotics had a comparable impact. Tuberculosis was a fantastically expensive disease a century ago--think of the balconies in the mountains of Davos or New York's Saranac Lake. Polio meant braces and iron lungs. Those costs have all but disappeared.

But while the costs of incapacity, home care and the sanitarium declined, spending on hospitals and physicians rose sharply. Families began outsourcing their health care, particularly for the elderly. This pushed the costs out into the open, where they could be covered by insurance programs and decried by budget experts. The real cost of health care--avoiding disease or recovering from it--certainly continued to drop fast, but now the costs were incurred not in time but in dollars--often government dollars--and that of course changed the debate.


It�s important, though, that we correctly characterize Professor Grady�s work. While he looks to technology rather than doctrine as the primary cause of the medical malpractice litigation explosion, he isn�t saying that the explosion isn�t a problem. He certainly isn�t saying as you do � echoing the favorite mantra of the trial bar � that these crises �largely reflect the failure of cyclical insurance markets.� What does Grady say? �New lifesaving technology can easily create a tort crisis by expanding the amount of insurance that doctors are obliged to offer their patients. For various reasons, patients and other potential victims may not be willing to pay for the amount of insurance that the new technology, operating through the tort system, foists upon them.� Not the �insurance cycle� (I agree with you that insurance companies� investment returns matter, by the way, due to the time value of money; but the long-term driver of liability insurance is liability, which you essentially agree to in your last post) � but rather insurance that new technology �foists upon them� �through the tort system.�

Let�s put this point in different terms. Patients cannot �opt out� of tort contractually (notwithstanding that they�re really in contractual relationships with their medical care providers � they don�t run into doctors accidentally on the street). They can�t buy health insurance policies that are cheaper but have binding provisions that, say, cap the damages they could recover in a tort negligence claim. (Paul Rubin argues rather convincingly that they should be able to, but his ideas, like some of yours, haven�t gained political traction.) In essence, the tort system �foists� unwanted insurance on health care consumers.

Grady�s work merely points out that rather than being due to changes in substantive or procedural legal rules, this effect may be due in significant part due to the rapid pace of technological change itself. That doesn�t mean it isn�t a problem. Grady again:

Technology-induced insurance effects are practically indistinguishable from the older insurance effects that are implicit in applying the negligence rule to old activities. While negligence liability generally has a beneficial deterrent effect, liability for inadvertent negligence inevitably has an undesirable insurance effect that after a point outweighs the benefits of increased deterrence. . . . [F]or a variety of reasons already emphasized by Danzon, Priest and others, the normal measure of damages may exceed the amount of insurance against physician inadvertence that the patient would wish to purchase, and this may be especially so in periods in which risk-loading technological change has an edge over the risk-dumping variety. The very magnitude of medical benefits relative to most people's income can make unwanted insurance very costly to consumers, and this problem becomes more acute as medical technology improves.

I think that the �point� Grady describes has been reached. Access to health care is limited for many Americans, in no small part, due to the fact that American tort law � operating on what law and economics scholars call strict �liability rules� � can�t be contracted around in the medical malpractice (or products liability) arena. So all Americans must purchase the maximum technologically feasible health care � as determined by courts (ultimately, lay juries) � or be left unable to afford health care at all. Do you really think that liability problems don�t �come within an order of magnitude of threatening medicine�s success�? (Caveat: I know that you write �success in the future,� which shouldn�t be overlooked. But I�d say the effects on innovation of product liability abuses � see, e.g., Bendectin, breast implants, Fen Phen, which we detail in Trial Lawyers, Inc.: Health Care � are enormous. Vioxx and Fen Phen will cost their companies ten times their respective research and development budgets. The annualized cost of the liability for these two drugs alone is roughly one-tenth the annual sales of the whole U.S. pharmaceutical market. That doesn�t have a significant impact on innovation?) I think here�s the crux of the issue: we just don�t agree on the degree to which the liability system generates health care problems.

I�ve gone on for a while, but problem definition is important. I will however touch upon each of the health care issues you call out, at least briefly.

1. Compensation for avoidable injury is inadequate.

I can�t imagine how flat caps on damages would help get more injuries fairly compensated in conventional litigation, or would fail to harm the most severely injured. But perhaps you see possibilities I don�t.

I agree with you on point one, and at least somewhat on point two. Damage caps (here we go again�) aren�t a solution that would help compensate the many avoidable errors that our liability system doesn�t reach. Why aren�t many injuries compensated? Because the administrative costs of the tort system are enormous. (A side point: in your last post, you snarkily remark: �I�m always surprised that tort reformers, despite their business allegiances, fail to grasp the basic economic fact that, administrative costs aside, a reduction in insurance premiums unaccompanied by a reduction in insurable events is merely a wealth transfer, not a net savings to society.� Well, the administrative costs can�t be left �aside� � they represent over half of all litigation costs. Tort awards themselves are nothing but wealth transfers, effected by a system with extremely high administrative costs. The question is whether those transfers make sense in the first instance. If, say, the tort system were merely a random lottery in which one out of every 100 medical patients struck it rich, it probably wouldn�t make a heck of a lot of sense, even leaving administrative costs to the side. Why should the other 99 patients have to pay to support this lottery? Now I�m not saying that the tort system is literally a lottery, but if the system is just transferring money without properly meting out its deterrence function (which can include deterring the wrong things, it�s not simply having no deterrent effect at all), it�s not a system we�d want to defend, since we could operate a no-fault or alternative system at much lower administrative cost.)

Why are these administrative costs so important? We have this peculiar �American rule� that means the losing party to a lawsuit doesn�t pay the other side�s expenses. So if Jane Roe is injured by a clearly avoidable error, but her injuries only amount to $25,000, she won�t be able to get a lawyer to take her case, since the lawyer won�t recoup enough to cover his own legal bills � and the defendant insurance company knows that.

A loser pays rule, like the rest of the developed world enjoys, dramatically changes this calculus. The lawyer can recover all his fees for a clearly avoidable injury, once he goes to court and wins. The insurance company knows that, too, so it offers to compensate her reasonably.

My colleague Walter Olson has written about loser pays for years, and it�s something we at the Manhattan Institute continue to work on. Unfortunately, like some of the other reforms � many potentially salutary � that you�ve advanced, the �political will� to implement loser pays in almost any U.S. state isn�t really there at the moment.

A quick caveat on point two: I agree that at least some severely injured claimants would suffer, at least somewhat, with damage caps. But it�s important to emphasize that other reforms adopted in conjunction with damage caps can soften this blow. California�s MICRA, for instance, has contingency fee caps on higher-dollar cases, in addition to damage caps. Some severely injured claimants make out better under this system precisely because their lawyers� fees fall, even though their noneconomic damages are capped. Some percentage of claimants � 7 percent, according to a RAND study � do see an actual reduction in damages received (presumably because their damages are predominantly noneconomic). This effect is a real negative for some, though not one in my view that trumps the generally sensible notion that society can decide a reasonable ceiling for noneconomic damages, which if that ceiling lowers costs is worth adopting.

2. Too many avoidable errors occur.

Again, one would think that capping damages alone would do nothing to reduce errors, and might increase errors by removing financial incentives for safety improvement.

Now, I can almost see the saliva dripping onto your keyboard as you mouth �defensive medicine.� I agree that defensive medicine matters; in fact, I co-authored the most recent empirical study of defensive medicine to appear in the health policy literature (JAMA, June 1, 2005). Defensive medicine is important for more than the aggregate-health-care-cost arguments intended to sustain political momentum for tort reform between crisis periods even though physicians have easy access to cheap malpractice insurance. Defensive medicine is important during malpractice crises because physicians who fear an imminent loss of affordable coverage treat patients worse as a result � not only engaging in wasteful �assurance behavior� such as expensive diagnostic testing, but also performing unnecessary invasive procedures that plausibly increase risks of physical harm and avoiding types of medical care and types of patients they consider unduly risky, even when those patients need services. But MICRA-style reforms are tangential to defensive medicine. The deeper causes of defensive practice are clinical uncertainty, fragmented medical practice, and a malpractice insurance system that is as isolating and unforgiving in bad economic times as it is oblivious to health care quality in good economic times.

I�m not sure I agree with you here. Yes, I agree that too many �avoidable errors� occur (though we may have a normative disagreement about what an �avoidable error� really means; I think individuals should be able to contract around liability rules that mandate an immutable standard of care consistent with the most cutting-edge technologies available). But in some sense it�s an �error� if there aren�t enough ER doctors, no? Moreover, the fear of unlimited liability undoubtedly keeps doctors from honestly admitting mistakes, and discussing them, and working to improve practices and procedures that could reduce mistakes. Limiting the scope of that liability would free doctors and hospitals to be more open. I think that most doctors genuinely want to help their patients. Most hospitals want to rectify errors. But they don�t want to risk crippling liability in the process.

As for defensive medicine, I�m not sure liability is � or caps are � tangential (again, you reduce the entire discussion here to the �MICRA boogeyman� so I feel I have to respond). Doctor surveys suggest otherwise. Kessler and McClellan�s seminal 1996 study, and many others, suggest otherwise. Kessler and McClellan found a 5 to 9 percent cost reduction from �MICRA-type� reforms. That�s pretty sizable.

3. Litigation is too slow, too costly, too uncertain, and too unpleasant.

Physicians and patients should be intimates, treating each other with respect, concern, and compassion. Third-party liability coverage turns them into strangers, and litigation turns them into adversaries. Caps do not help. At most, MICRA results in somewhat less of a bad process, not a better process. Ask any doctor in California.

I agree that litigation is too slow, costly, uncertain, and unpleasant. I disagree that �caps do not help.� A �somewhat less bad process� is a better process, in my book. But enough about that. For someone who complains that the tort reform debate is all about caps, you sure do want to talk about them a lot.

4. Premiums for primary coverage are too volatile and, for some physicians, too expensive.

This is an insurance market problem. Caps help, but very bluntly. Why not address risk-pooling problems and the clinical bottlenecks they create during crisis periods directly? For example, try revamping specialty- and geography-based rating practices for physician liability coverage and moving more of the market into stable, diversified institutional settings?

Now we�re getting somewhere. Time constraints prevent me from responding fully here, but I would like you to expand on this idea in your next post, if you�re willing. Precisely how do you propose �revamping specialty- and geography-based rating practices�? And what�s your mechanism � by reducing insurance regulations to permit more insurer innovation or by mandating how insurers work through a top-down central command?

5. Excess coverage and reinsurance are too costly for hospitals and other institutions.

The biggest insurance problem during the current malpractice crisis is high-dollar coverage for institutional defendants, say $10 million or more per claim. Even in the most severe malpractice crisis, hospitals can handle smaller cases just fine (a $250,000 cap is a rallying cry, not a policy prescription, and is irrelevant once one looks beyond individual physician defendants and the narrowly exposed liability carriers that insure them). Caps might help in the large cases, though again very bluntly, but not when applied only to non-economic damages as their proponents � bowing to political reality � generally urge. Economic damages, not non-economic damages, are the principal source of financial exposure in the largest malpractice cases � usually involving newborns or children who have suffered lifelong debilitating injury.

I certainly agree with your initial factual claim. And I also agree with an implication of your point, if I�m reading it right, that it might make some sense to cap economic damages in addition to noneconomic damages. While some economic damages shouldn�t be capped � say, the cost of medical care (which as you note can be exceptionally high in some cases) � I�m not sure why we shouldn't cap lost wages after a certain level. If someone�s earning over $100,000 a year, and fails to buy long-term disability insurance, I don�t have too much sympathy, and I�m not sure the tort system should bail him out. I think that capping lost wage recoveries � precisely because the only ones who�d suffer would be the better heeled � would add to the political salience of tort reform, and I wish someone would get behind the idea.

I�m less confident in your claim that noneconomic damages aren�t a huge part of the med-mal problem. Overall, we know that noneconomic damages exceed economic damages in the tort system. Is medical malpractice liability really that different � and if so, why?

Finally, I�ll touch on your �neutral, court-appointed experts� idea. I agree wholeheartedly that expert evidence is a huge part of this equation. My colleague Peter Huber wrote two books on the issue in the 1990s. In short, I enthusiastically support state experiments in this area. A caveat though. The political reality is that many state-court judges are captives of the trial bar. There isn�t good empirical evidence that I�m aware of that shows such reforms to be effective in practice. So while I�m all for such approaches, that�s in addition to � not in lieu of � traditional tort reforms (yes, Bill, including damage caps), which have a strong empirical track record of success.

I hope that�s enough to chew on for now. I will get into the �plaintiffs� bar business model� in the next post. For now, I�d refer you to our original 2003 report, which outlines the concept in more detail. This new report builds upon that idea.

I�ll also, in my next post, want to go into at least some more detail on drug and device products liability, not just medical malpractice. I�ll give some attention to the FDA preemption point, which you lampoon.

And in your next post, if you want to advance some of your other ideas that you�ve worked on in addition to court-appointed experts, please do. I�d love to discuss them.

Looking forward to your response,

Jim

P.S.: I�m not going to get into a universal health coverage debate, though I�m curious as to how it has much to do with tort reform � unless you want the government to take over health care and use its sovereign immunity. But maybe I�m missing something.


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

A Business, Not a Profession

November 24, 2005 2:38 AM

Bill (or should I say Dr. Sage?),

I�m belatedly getting around to discussing what�s really at the core of the Trial Lawyers, Inc. project: the fact that trial lawyers today operate much more as a business than as a profession. I don�t think that this basic fact is really much in dispute, and I can hardly go into the point here in the depth that my colleague Walter Olson did some 14 years ago in The Litigation Explosion, or even in the depth that we went in the original Trial Lawyers, Inc. report. But let me try to give a synopsis of what I call the �business model� of the plaintiffs� bar. I�ll then turn to drug products liability, and finally I�ll touch on some of the medical malpractice liability proposals you�ve endorsed.

Law Goes From a Business To a Profession

Let�s begin with the underlying history and premises. Law historically, like medicine, has been a �profession.� That is, as opposed to general businesses, lawyers (and doctors), operate under special ethical rules of conduct (rules that, for better or worse, are typically set by the professionals themselves). There are important reasons for doctors and lawyers to be professionals. First and foremost, both professions represent patients/clients who are often unsophisticated in assessing the services being offered, so the professionals have to be scrupulous in providing a duty of care consistent with the patient�s/client�s interest. Doctors shouldn�t sell snake oil or unneeded surgeries. Lawyers shouldn�t bilk their clients with billable hours for unneeded work. And patients and clients need to be able to be totally honest with their doctors and lawyers, so they�re owed a duty of confidentiality.

Now, I think that these basic points should be relatively uncontroversial � as should the important counterpoint: the professionalism of medicine and law need not imply that there�s no place for market-based approaches, because incentives obviously do matter. Approaches that force medical patients to foot more of their own bill, as opposed to shifting their costs to a third party, will inevitably put downward pressure on costs. Aligning lawyers� incentives with those of their clients � as the contingency fee does � will keep attorneys from wasting time that they otherwise might.

When it comes to the legal profession, there�s a significant additional point to keep in mind � one that differs from the medical profession and all others. Practitioners of law, uniquely among those not in the government itself, have the power to take property from parties without their consent. Lawyers, through the courts, have unique access to the government�s monopoly over the use of force. Now, other businesses and professions can dupe people through fraud. The medical profession has some limited ability to take people�s freedom (e.g., by forcing people into psychiatric wards). Still, in general, law is the only American business, apart from crime, where the fruits of one�s labors are directly tied to one�s ability to take others� property without their consent. Crime, of course, is something we try to stop. But the ability to take property through the law is something the American system facilitates, in a manner unlike any other country.

A few features make American law unique. First, we have the contingency fee itself. Although some other countries are opening up to the idea, historically, the contingency fee is an American innovation. Its salutary effect is that it opens access to the courts to the less affluent and it aligns lawyers� incentives with their clients�, as noted above. Its downside? The contingency fee creates a direct, and powerful, incentive for lawyers to take as much property as possible. In the course of representing a single client, this effect is less pernicious (though, as Olson notes, the incentive to cheat, manufacture evidence, etc. � unbecoming an officer of the court, as those in the �legal profession� are supposed to be � is far greater when you have a vested interest in the outcome). But what we�ve seen in the plaintiffs� bar is the wholesale solicitation of clients (more on that later), many of whom aren�t really injured; and in the course of aggregative litigation (dramatically expanded since the 1960s by changes in Rule 23, which governs class actions), lawsuits where there isn�t really a client at all (if you doubt this, ask securities lawyer Bill Lerach, who once said he had the greatest legal practice in the world because he didn�t have any clients). The contingency fee is a direct inducement to litigate � and thus to take property by force. Olson analogizes the practice of enabling invading armies to keep whatever they plunder: it may help troop morale, but the consequences are predictable.

In addition to the contingency fee, the United States (apart from Alaska) has the �American rule,� i.e., the system wherein a party who unsuccessfully brings litigation doesn�t have to bear the other side�s costs. Low-value, good claims are discouraged, as I noted earlier in this discussion: lawyers working on a contingency fee don�t want to bear costs they�re unlikely to recoup. But the inverse is true, too: low probability cases are encouraged because the defendant�s litigation costs are sufficiently high that they�re willing to settle even very weak claims.

The latter incentive is significantly muted when defendants face repeated, similar claims; as game theory would suggest, to discourage low probability claims, a rational defendant would only settle repeat claims where the plaintiffs� lawyer had a positive expected value, i.e., where the expected verdict exceeds the plaintiffs� expected legal bills.

But in the American legal system, even for low probability claims, the expected value of a claim from the plaintiffs� lawyer�s perspective can be quite high � because juries regularly make erroneous findings of fact, and because they can slap defendants with exceptionally high punitive damages and difficult-to-review noneconomic damages. Contingency fee lawyers, with sufficient ability to disperse risk, can play a game with a positive expected return. It�s a gamble, but they have the house odds.

America�s decentralized federal system also creates a lot of opportunities for overlitigation. In general, federalism is a salutary American feature: it disperses power, and as Brandeis noted, can let states serve as �laboratories of democracy� with competing policy packages. Such varying policies generally create incentives that drive states toward efficient rules over the long run, since labor and capital are mobile. But as our nation�s experience with the Articles of Confederation showed, the devolutionary principle has its limits. Where states have incentives to impose costs on their neighboring states � say, by dumping their refuse in a river that flows next door � the federalist premise breaks down. As Tabarrok and Helland�s research on state judges shows, states (or, more precisely, elected state judges) have incentives to adopt loose liability laws so that they can impose costs on out-of-state defendants to the benefit of in-state plaintiffs. The absence of a federal choice of law regime means that states (like West Virginia) or localities (like Madison County, Illinois) can make litigation a cottage industry. When venues are easily shopped � as in products liability cases and, at least until this year, class actions � plaintiffs� lawyers can exploit these �magnet courts� to great benefit.

Finally, American lawyers today are able, in a rather �unprofessional� way, to hawk their services. Prior to the late 1970s, the basic American norm on lawyer solicitation generally was in accord with Lincoln�s suggestion that we �discourage litigation.� But by 1977, the Supreme Court called the �underutilization� of lawyers in America a problem, Bates v. Arizona, 433 U.S. 350, 376 (1977) � and upheld lawyers� right to advertise the availability and price of their services. By 1988, the Court extended that right to direct-mail solicitation. See Shapiro v. Kentucky Bar Association, 486 U.S. 466 (1988). I tend to be a free speech purist, but it�s hard not to acknowledge that the ability to advertise is directly related to the de-professionalization of the plaintiffs� bar and the litigation explosion in America.

The Trial Bar's Business Model

These incentives all matter. And they�ve led to a plaintiffs� bar that to a significant extent works as a sophisticated business, not as a profession. How so?

Marketing. To be successful, any business must attract customers. The plaintiffs� bar of course lacks traditional customers: the people who pay plaintiffs� lawyers aren�t willingly parting with their money, but rather are being forced to do so. That captive customer base is the key feature that makes the plaintiffs� bar so successful. To get at those customers, however, the plaintiffs� bar must attract clients. That�s something the plaintiffs� bar is able to do today with a very high level of sophistication:

o Television, radio, and print ads. One day when you�re home sick, just check out the ads that run during those annoying daytime talk shows. Or turn on BET for a while. You�ll see scores of plaintiffs� lawyer advertisements, going after the trial bar�s attractive client base.

o Internet-based solicitation. There are increasingly targeted banner adds, sites where you can sign up �for the money you may be due,� and targeted emails (have you gotten a Vioxx solicitation lately?).

o Automatic clients. While advertising is the bread and butter of the mass tort bar, the class action bar has it easy � they just need to find a name plaintiff (sometimes itself a dubious task: just ask Milberg Weiss), and everyone else comes in, automatically, under Rule 23, unless they bother to �opt out� of the class.

In the health care context, we see all these methods of gathering clients. When Scruggs and Boies, and later Milberg Weiss, sued HMOs under civil RICO, they developed a class action. Ditto for Scruggs�s suits against nonprofit hospitals. TV, print, and internet client solicitation for pharmaceutical mass torts are ubiquitous. Internet ads seeking clients whose babies were born with cerebral palsy shout, �Your child's cerebral palsy may be the result of a medical mistake. Don't get mad. Get Even!�

Division of markets and labor. Some �trial lawyers� make their wares without ever pretending to go to trial � they�re client grabbers. They round up folks and sell off their claims. Other lawyers are negotiators, and others actually go to trial. Such division of labor in and of itself isn�t troublesome, and increases efficiency. The problem is that trial lawyers, at least in much mass tort litigation, don�t really �compete� for customers in the traditional sense. They work with the client aggregators to gobble up as many clients as possible � clients who aren�t really picking their lawyers based on any real criteria at all. There�s to a significant extent a division of the market � you get yours, I get mine � and the process creates a major barrier to new entrants. Of course, an enterprising plaintiffs� lawyer can join the big boys� club by winning a landmark case: but it�s a long-shot, and the existing players have sufficient capital to carve up much of the market for themselves. There�s a lot of rivalry, but not a lot of price competition: contingency fees are essentially standard, as Lester Brickman has shown.

Product development. Lawyers don�t make products, but they do try to develop successful lines of business. Anyone with a deep pocket is a potential target. As Trial Lawyers, Inc.: Health Care shows in significant detail, in health care, every market segment has been in the trial bar�s crosshairs � doctors, hospitals, and nursing homes; drug and device makers; HMOs. �Developing� a product line is an expensive process, but one lawyers spend a lot of time and money on. Conferences on various types of litigation are abundant. ATLA makes information on various �litigation groups� available on its website. Now, many of these techniques relax the barriers to entry already mentioned. But the key for the trial bar is to share knowledge and score wins � because wins beget settlements. The competition to gather clients is the only real rivalry in town.

Business Analysis

If you were to do Michael Porter�s �Five Forces� industry analysis of the litigation market, Trial Lawyers, Inc. would score big:

Buyers (i.e., defendants) have no power, apart from imposing costs on plaintiffs under the American rule.

� Since expert witnesses willing to prostitute themselves for money are readily available, the only supplier power the trial bar faces comes from the West/Lexis electronic legal research duopoly, which itself is weakening in the internet era.

� The trial bar faces no real substitutes, since its access to the courts is unique.

Competition among plaintiffs� lawyers is fierce, but only for initial client solicitation, and then not on price . . .

� . . . owing in significant part to the substantial barriers to entry in the mass tort/class action market, already discussed.

Now don�t get me wrong � being a plaintiffs� lawyer per se isn�t necessarily an easy road. There are a lot of lawyers who have a hard time squeaking by. What Trial Lawyers, Inc. is about is those market leaders � the guys who are able to dominate the class action and mass tort bars � and they have a pretty lucrative business indeed.

The Problem of Law as a Business

So what�s the problem? I�m a supporter of free markets � you even characterize me as a �shill� for �big business.� What�s wrong with lawyers acting more like businesses? Well, as I�ve already suggested, the problem is that the lawyers� business, unlike others, doesn�t inherently generate value but rather redistributes through force. If I sell you a product or service, we both benefit, assuming there�s no fraud or duress and that we�re both able to assess our self-interest. I value your money more than the product or service I sell, and you value the product or service more than the money you pay. Redistribution by force doesn�t work that way. Party A, the plaintiff, takes from party B, the defendant. Party A is better off, but party B is worse off. And there�s a net social loss in that the scarce resources spent taking from party A and giving to party B could have been spent elsewhere, i.e., generating goods or services of value.

So the real question we should use to evaluate litigation is whether it adds any value apart from redistribution itself, and whether that value added, if any, exceeds the extremely high transaction costs and opportunity costs inherent in the system. There�s nothing wrong in principle with lawyers making a lot of money. The problem presented in the litigation context is (a) whether that money is reflective of real value added for the client, and (b) whether that money should have been redistributed in the first place � i.e., whether a real harm that �should� be compensated occurred, as judged from the standpoint of either fairness or efficiency. (Ultimately, in the world of tort, I think that the fairness and efficiency criteria for (b) wind up the same: even if we buy into the notion that you advance in your last post that the way society treats its weakest members matters � and I agree to some extent � the tort system is about as inefficient a means of general redistribution as we could possibly devise.)

The problem with the plaintiffs� bar today, for critics like me, is that it often exploits its clients and that it taxes society with litigation that it shouldn�t, leading to substantial dead weight loss today and perverse incentives not to invest and innovate for tomorrow. Though the tort system in its classic form did offer a means of redress for injured parties whose injuries were wrongly caused by others, the system is ill-equipped to be a general insurance scheme, Prosser, Traynor, et al. be damned. And though the classic common law tort system was generally efficient and served to deter harmful behaviors, the system is ill-equipped to be a general, comprehensive regulatory regime, Calabresi, Posner et al. notwithstanding.

But today, the perverted tort system is what we have. Far from its roots as a profession representing clients and owing a general duty to the public, the plaintiffs� bar is a big business tapping into the American legal system�s unique rules that enable it to feed at the trough. The trial bar�s business success owes not to natural monopoly but to its rule-enabled abuse of lawyers� unique access to the government�s monopoly on the use of force. And perhaps the most sophisticated part of the lawyers� business model � their government relations and public relations efforts, which we detail at length in our Trial Lawyers, Inc. report � are geared specifically toward protecting the rules that make their government-enabled monopoly so valuable: unregulated contingency fees, the lack of a loser pays rule, maximum jury discretion, loose evidentiary requirements, loose aggregation requirements, unlimited damages, and easy venue shopping, to name a handful already discussed.

Torts for Drugs and Medical Devices

OK, so now that I�ve gone on at length about the business model of the trial bar, I�ll move into the other, specific element I said I�d cover: the mass tort problem as it relates to drug and medical device litigation, and my preferred response (preemption). Americans� health care has been radically improved in the past generation or two in large part due to dramatic innovations in the development of pills and products that prolong life or make our lives easier to live. Bacterial scourges that once wrecked havoc have been all but eliminated, as Huber noted in the article I cited in my last post. Drugs and medical devices constitute only 11 percent of health care spending � most still goes to doctors and hospitals � but they�ve revolutionized health care. People who were bedridden and needed full-time care are now able to walk and function without assistance; people who were institutionalized can now take a pill and interact in normal society; people who would have dropped dead prematurely of a heart attack can keep their cholesterol down with a host of medications.

The medical innovations that have so changed our health care have occurred regardless of the litigation explosion, but let�s not pretend that lawsuits don�t matter on the margin. And the marginal impact on companies� incentives is sizable. As I point out in my director�s message in Trial Lawyers, Inc.: Health Care, the estimated liability costs of Vioxx and Fen Phen, alone, are roughly ten times their respective companies� research and development budgets. On an annualized basis, the cost of those two mass torts comes to roughly ten percent of the entire U.S. pharmaceutical industry�s revenues (the percentage would be lower if we account for the time value of money, but these aren�t super-delayed torts like asbestos). That�s a punch that packs quite a wallop.

And the punch is also, far too often, below the belt. We�ve seen lawsuits bankrupt companies with billions in liabilities over products that aren�t unsafe (e.g., the breast implant litigation). We�ve seen lawsuits force useful drugs from the market that aren�t unsafe (e.g., Bendectin). We�ve seen lawsuits saddle companies with far more liability than their products actually caused by flooding the system with bogus claims generated by fraudulent screening systems that are mass production systems �that would be the envy of Henry Ford� (e.g., Fen Phen). We develop these and other examples in much more detail in Trial Lawyers, Inc.: Health Care.

The point? Just as our system of adversarial trials before juries makes a mess of med-mal cases, it gets it wrong an awful lot in products liability cases. That�s the biggest problem with the stylized law and economic models that Calabresi, Posner and their successors developed for tort law: they assume that trial outcomes, on average, get it right. What we see is that trial outcomes, on average, get it wrong. Let me stress that when I say �on average,� I don�t mean that most juries get it wrong. They don�t have to for the expected return of trials to be way off base. You just need the odd jury to produce outlandish results, with outlandish dollar verdicts, to throw off the average verdict � and the expected return from litigation � dramatically.

The law-and-economic theory of tort regulation in essence tries to make the courts a regulator of choice � despite the fact that trial outcomes don�t come close to approaching a proper cost-benefit analysis and that the administrative costs of running the system are exceptionally high. The system lacks the fundamental principle of the rule of law, that is, predictable outcomes.

In criticizing �regulation through litigation,� I don�t mean to ignore the trenchant critique of regulation. Adopting overly strict ex ante rules can stifle innovation. There�s something to be said for setting up clear overarching guidelines � simple rules, in Epstein�s terms � and punishing harms ex post.

But for ex post penalties to work, we have to have some confidence that they will be rationally related to the harms they penalize, so that actors appropriately internalize their costs. When it comes to mass tort drug and medical device litigation, I simply lack confidence that the penalties will make sense. In addition to the aforementioned examples, take the Angleton, Texas verdict recently levied against Merck when a 59-year-old man with clogged arteries died of a heart arrhythmia (a condition no scientific testing has shown to be linked to Vioxx), after taking Vioxx for 8 months (10 months less than the length of time for which scientific testing has linked Vioxx to heart attacks), in moderate doses (notwithstanding that Vioxx has only been linked to heart attacks when used in heavy doses as an experimental treatment for precancerous intestinal polyps). Carol Ernst, the deceased�s wife of one year, scored a verdict over $250 million. Will that verdict be substantially reduced? Yes, largely due to Texas�s punitive damage caps � but the $24 million in �mental anguish� damages aren�t capped, and they will prove difficult to review.

As my colleague Peter Huber noted in Liability, �jurors, who generally can reach sensible judgments about people, perform much less well when they sit in judgment on technology.� In part, jurors� failings are due to a lack of technical expertise. Jurors also fail because they �face accidents up close� without the �broader vision, dominated by the individual case.� In addition, jurors are particularly prone to hindsight bias, �the natural human tendency after an accident to see the outcome as predictable � and therefore, easy to affix blame,� which �makes the defendant[s] appear more culpable than they really are,� Steven Hantler, The Seven Myths of Highly Effective Plaintiffs� Lawyers, Manhattan Institute Civil Justice Forum 42, at 13 (April 2004). Finally, jurors tend to penalize the new while accepting the old, which clearly threatens innovation. Aspirin and ibuprofen kill 16,500 people a year due to gastrointestinal side effects � the very problem Vioxx and other Cox-2 inhibitors are designed to avoid � but you�ll never see Bayer getting slapped with aspirin liability.

Compounding the inherent problems jurors have in assessing drug liability are the many structural elements of the American legal regime that enable lawyers to game the system. Widely used drugs wind up as mass torts, and lawyers can flood the system by recruiting thousands of claimants, some of whom have an actual injury caused by the drug but many of whom do not. Lawyers and defendants both know that jurors will occasionally be duped, so the cases will have settlement value, and the lawyers will only get burned if a thoughtful and energetic judge takes the time to really look into the pool of claimants, as has recently happened in Fen Phen and silicosis cases.

What jurors often fail to realize, at least for new medications, is that pharmaceuticals that save or help most people, but kill or injure some small subset of users, are often drugs that nevertheless should be on the market. To get through the onerous FDA review process, drugs must go through substantial testing for both safety and efficacy. The point of the federal regulatory regime � which is far from perfect, admittedly � is to perform a basic cost-benefit analysis. The safety-effectiveness trade-off is a function of the magnitude of effects � the harms prevented and the harms caused. A drug that kills 1 in 100 users but is the only treatment for an otherwise fatal illness, and increases the likelihood of survival from 0 to 50 percent, is clearly a drug that should be on the market. Any rational consumer afflicted with the fatal disease would choose to take the drug. Any doctor would recommend that his patient afflicted with the disease take the drug. If the disease being treated is 99 percent likely to cause death, the calculus doesn�t change.

Of course, in the real world, choices are rarely so black and white. Ailments aren�t necessarily fatal, and they often vary in degree, and side effects vary depending on patient profile. The job of the FDA is to determine if a drug, on balance, is sufficiently safe and effective to be on the market at all; and to determine what warnings and other information on the drug should be presented, and how, so that consumers � in reliance on their doctors � can make reasoned decisions about whether taking a medication is for them worth the risk.

That drug liabilities should be �known� and �reasonable� so that patients and doctors make informed decisions to assume risk was classically a key feature of how tort law handled drug liability � as long as the risks of using the product were known, drug makers were traditionally insulated from liability for their products unless they had been faultily manufactured (i.e., they�d made a �bad batch�). See Restatement of the Law 2d, Torts, � 402A comment k (American Law Institute 1965) (asserting that the manufacturer of drugs �is not to be held to strict liability for unfortunate consequences attending their use merely because he has undertaken to supply the public with an apparently useful and desirable product, attended with a known but apparently reasonable risk�). Paradoxically, though, even as the federal government developed a comprehensive regime to regulate drugs on the market � with the aforementioned safety and efficacy testing, as well as tediously precise dissemination of warning labels and information � the protection for drug manufacturers whose products were �apparently useful� but had a �known but apparently reasonable risk� came to be gutted by the courts.

The Solution: FDA Preemption

Hence my call for FDA preemption. Let me clarify exactly what I mean. If the FDA approves a product, and the drug manufacturer was not fraudulent in its FDA submissions, the manufacturer should not be held liable for harms caused by its products that were known to the FDA and, at the FDA�s discretion, publicized in labeling or otherwise as the FDA best saw fit to require. The FDA permits the drug on the market that kills 1 in 100 people but saves half of the 99 percent who otherwise would die? Those 1 percent killed have no claim. Likewise with any other person injured by a drug if such injury is a side effect known and publicized at the time the drug was prescribed.

Now, what about those claims � like Vioxx and Fen Phen � in which an initially unobserved side effect becomes evident through subsequent testing? We may not want to foreclose all potential for redress here. I�d be worried then about too much FDA Type II error � i.e., if the FDA knew that anyone injured by a drug it had approved had no recourse whatsoever if an undiscovered side effect cropped up, it would face that much more institutional pressure to order larger, and longer, tests. The public would suffer, as good drugs were kept off the market for too long.

So for those classes of injuries that cropped up in later testing, post-FDA approval, we might well want a compensation scheme for injured parties who took the drugs. But the claims shouldn�t be in tort! Remember that the traditional tort rule was merely that a drug be �apparently� reasonable. A drug manufacturer who complies with the FDA process but subsequently discovers a defect hasn�t committed a �wrong,� even though its product has caused injury to some individuals who weren�t fully aware of their own risks at the time they took the drug. Acknowledging that patients who are injured by drug side effects unknown at the time of FDA approval need not imply that we muddy our tort system with these claims and process them in the administratively expensive and imprecise way that the litigation process necessarily involves.

Fortunately, we have a pretty good template for handling drug claims outside the courts in the Vaccine Injury Compensation Program, which Congress established in 1986 after lawsuits threatened to wipe out vital children�s vaccines. (Vaccines present a special case: we want people to take them, because we�re all better off if they do. But there�s an inherent free rider problem in that if everyone else is vaccinated, you lose some of your incentive to assume the costs � and the risks � of taking the vaccine yourself.) The VICP operates efficiently, at 9 percent administrative cost. It effectively weeds out bad claims but generously compensates good claims. A comparable program could handle all drug claims, rejecting outright any premised on harms that were disclosed by FDA requirement at the time the drug was prescribed, and allowing claims to go forward for injuries actually caused by side effects that were unknown at the time of prescription. And if the FDA decided to add a new side effect warning to a drug, while permitting it to still stay on the market, suits by individuals who subsequently took the drug would of course also be barred.

The key caveat to the FDA preemption I propose is that the drug manufacturer was not fraudulent in its FDA submissions. If the manufacturer did in fact lie to the FDA, it should lose its statutory safe harbor � because it did do a �wrong,� and its drug was not �apparently reasonable� as the FDA had assumed. But lawyers shouldn�t be able to circumvent the statutory preemption merely by making this claim, which would be routine in all drug lawsuits and gut the regime�s whole effectiveness. Rather, the FDA � or another independent body � should have to make a ruling that the company had been fraudulent. Only then would the company lose its safe harbor protection.

Getting Back to Medical Malpractice

So that�s my take on drug liability. I�m very interested in your thoughts. Though this post is already some 5,000 words, I do want to spend a little time getting back to medical malpractice, and addressing your specific points raised in your prior post, because I don�t want us to �talk past each other.� I�ll also comment briefly on a couple of other ideas, at least one of which you�ve backed in the past.

Before I get specific, let me make a comment on my earlier invocation of Philip Howard and Common Good: I mentioned him not to imply wholehearted endorsement of his approach to medical malpractice liability but to show that the Manhattan Institute Center for Legal Policy has given a lot of attention to alternative approaches to medical malpractice reform � and relatively little to damage caps. Philip is a friend, and I think he�s done a lot both to show the problems with the American legal system and to think outside the box about solutions, but by saying that we�ve featured him in events I didn�t mean to suggest that his preferred solution gets it all right. (I would take a little issue with your statement, though, that �a genteel business lawyer like Philip is not generally perceived as moderate by groups that aren�t naturally sympathetic to tort reform� � his Common Good board of advisors includes folks like George McGovern and Bill Bradley, whom I wouldn�t call big business shills or right-wing extremists.)

Your Plan for Health Courts: Thoughts and Questions

Now let�s get to the IOM-endorsed administrative compensation scheme you outline. To begin with, I�d agree that to the extent we can take medical malpractice compensation outside the adversarial tort system, it�s a goal worthy of experimentation. The adversarial system stifles real disclosure and safety improvement in medicine, as I noted before (and as you agree, at least to some degree).

I also agree that in general it could make sense to leverage existing regulatory mechanisms as much as possible � much like I propose building from the existing FDA and VICP in handling drug liability. But note that the case here is different than for drugs, from the standpoint of one who�s interested in torts (you, admittedly, are more interested in health policy outcomes, not the overarching tort regime). I don�t think most drug lawsuits belong in tort because the mere fact that a drug causes a harmful side effect doesn�t mean that manufacturers have done anything wrong. Unless drug makers have lied to the FDA, they haven�t committed a products liability tort that should be actionable.

In contrast, doctors are negligent all the time. That doesn�t mean they�re bad people, or even bad doctors, but they�re often at fault for patient injuries. When doctors are at fault, they do commit what those of us who are interested in that area of the law would call a tort. So Philip�s notion of a more traditional legal regime � based in tort, but with specialized decision makers � is in some ways more attractive to tort scholars. When you start carving out special exceptions to tort, as with workers compensation, there may be unintended side effects over time. That doesn�t mean we shouldn�t do so; I just flag the issue.

And I think to make myself more open to your idea, I might interpret it as follows: we�re setting up a regulatory regime at the state level, much like the FDA functions at the federal level, that in itself is designed to screen medical provision to reduce injury. Presumptively, even if individual mistakes are made that cause harm, a provider that�s been compliant with the regulatory regime isn�t at fault in the tort context. Injuries, even avoidable ones, are an �apparent risk� in today�s health care world, and aren�t really torts in the traditional sense in that people assume those risks when they go to the hospital in the first place � at least if the hospital is complying with an adequate regulatory regime that ensures that on balance it�s not making more mistakes than it should. That doesn�t mean people injured � if such injuries are �avoidable� � shouldn�t receive any compensation; but it means the injuries don�t belong in tort, at least in most instances. I�m not sure if that�s a legitimate read of your idea, but such a rationale would make me a bit more comfortable that simply saying, �health care�s special, and we should carve it out of tort because it�s special.�

There are a couple of salient points to your approach as I understand it that I�d like to comment on � and if I�m off-base in my understanding of your proposal, let me know. First, as I read your idea, it�s optional to the health care provider, not mandatory. Such a feature is important, because if the proposal were to get mucked up � either in the legislature or by the regulators � providers could always stick with the status quo.

I think by now you probably have guessed that I�m very skeptical of the legislative process. Public choice theory suggests I should be. The more complicated proposals become, the more politicians can mess them up. Jeff O�Connell found this out the hard way with automobile no-fault, and your comments on Pennsylvania�s treatment of Phil Howard�s health courts idea suggests more of the same. Part of the appeal of �traditional� tort reforms � damage caps, elimination of joint-and-several liability, and the like � is that they�re simple; you�re either for them or against them, but you can�t come up with a beast that�s worse than the problem you�re trying to fix. Those who are critical of the Congress�s proposed fix on asbestos � a fix that�s as necessary as any in tort � have just that argument, i.e., that the complicated trust fund mechanism that�s made its way through the judiciary committee is worse than what we have now. I�m not saying those critics are right, but the current example is a good one in showing just how easy it is for complicated reform schemes, which are elegant in theory, to get messed up when our actual political actors get their hands on them. In any event, a proposal that gives providers an option, as I read yours to do, has that as a major plus at the very outset.

I also tend to like your reform�s emphasis on what seems to be an �early offer� mechanism: �Providers would have strong incentives to engage the patient in mediated discussions, and to offer prompt, fair compensation.� As I read your idea, in your post and in other variants I�ve seen, providers who opt into the system would be immune from suit but in turn would have to make an early offer to pay patients reasonable economic damages and noneconomic damages (according to a workers-comp-style schedule based on type of injury). Disagreements would be resolved administratively, in a process that avoided a lot of the nonsense we see in the regular courts.

I tend to like the �early offer� mechanism of your approach, because it mirrors a lot of the ideas we discuss in the tort reform community. In general, our tort system mistreats victims of injury not only through its cost but also through the length of time it takes individuals to collect. Jeff O�Connell�s new reform idea for medical malpractice uses just such an early offer mechanism, though it goes a bit further (Jeff�s idea is that early offers to compensate economic damages in full immunize doctors and hospitals from suits over basic negligence). Other tort reform ideas tap into early offers, too � often functioning as client protection mechanisms; e.g., Lester Brickman�s idea, developed about a decade ago with the Manhattan Institute, calls for attorney contingency fees to be collectible only for �value added� above a defendant�s early offer of settlement. And those of us who think that offer of judgment rules offer the best opportunity to introduce loser pays principles into American jurisprudence also welcome attention paid to early offer mechanisms.

Now I fully realize that the early offer mechanism in your approach is just a part of the overall safety regime providers would have to opt into to qualify for immunity. But I like it, and in part I like it because I think it dovetails with other ideas that are important to the broader discussion over civil justice reform. Since that�s my primary focus � not just civil justice that affects health policy, but all civil justice � it�s a relevant consideration for me.

I�m not sure exactly how the idea would work in all respects. Let�s say someone claims he was harmed in an �avoidable injury,� but the provider never approached him about it or offered to pay. I�m guessing he�s still preempted from tort, as long as the provider has generally been compliant with its regulators? He still has to go through the administrative process � but perhaps the provider is socked with a penalty if the administrative tribunal determines that there was indeed an avoidable injury and the patient should have been informed and made an offer. Is that a reasonable reading of your approach?

I�m a bit more skeptical of your preferred implementation mechanism, namely Medicare, but more for reasons of political reality than anything else. If there�s a lobby more powerful than the trial bar, it�s the seniors� groups, and the AARP and ATLA tend to be tight. Any reform that the AARP might possibly view as lowering seniors� protections � and the trial bar would sell any change to the status quo as a lowering of seniors� protections � would be a non-starter politically. If you could persuade the AARP that it�s in seniors� interest to adopt a non-tort, administrative-law-judge approach to medical malpractice claims, I�m afraid that you could only do so by making the system exorbitantly costly. I may be overly cynical, but I do have concerns. (Note that my concerns with Medicare as a fulcrum for reform are more practical than theoretical. Indeed, as a purist, I�d much rather federal damage caps be imposed specifically on Medicare and Medicaid recipients, not preempt all state regimes, for reasons of federalism. But politically, such an approach wouldn�t wash.)

I tend to be more enthusiastic about employer-initiated approaches, i.e., letting employers offering health coverage through ERISA push their covered employees into an administrative plan. If the �big business� you accuse me of shilling for has any concern that�s bigger than litigation, it�s the cost of health insurance, and I think you might get business really motivated for such a reform if you could persuade business leaders it would actually work. Of course, ATLA might get labor to side with it in opposition, which could stifle reform, but I�m not totally sure that they would, especially if labor leaders were convinced they�d get some benefit back in lowered deductibles or higher wages.

Remaining Questions

A couple of other points before I sign off. First, I think that binding alternative dispute resolution could be a tenable reform. In theory, the Federal Arbitration Act enables such an approach, but in practice, state judges tend not to enforce arbitration and ADR provisions. What are your thoughts?

Also, I�d love to hear a bit more about your thoughts on enterprise liability, which I understand was once a major project of yours. To me, it seems as if private parties probably could contract for such a solution now, to a significant extent, but they don�t. Is that true, and if so, why do you think that is? How would legislation make a difference?

Anyway, at long last, I�m ready to catch up on my sleep (in anticipation of a big Thanksgiving meal). I think we�ve moved well beyond damage caps � and any accusations of who�s a �shill� for whom (though I really never meant to imply you were a �shill� for the trial lawyers!). I think I�ve given you quite a lot to chew on, and I look forward to hearing from you sometime after you�ve recovered from your turkey.

Jim

Why Flatter The Trial Lawyers?

December 6, 2005 11:18 AM

Jim:

I trust you enjoyed your Thanksgiving break, as did I. I think we have made considerable progress in this exchange. My first goal in this final post is to wind down our discussion of medical malpractice reform, where I think we have many sentiments in common. My second goal is to respond to your impressions of the trial bar generally, and to your specific concerns about pharmaceutical litigation. With respect to these issues, I think you surface several interesting and important issues, but to me they remain unsettled. I hope you will not interpret my uncertainty, and occasionally my skepticism, regarding the latter issues as vitiating our points of agreement on the former.

Let�s start with medical malpractice. I think we have very substantial agreement on many points. If major differences remain, I attribute them (as you have in prior posts) to our different perspectives. I think of litigation as a very tiny piece of the health care system, and I�m interested not only in improving medical litigation but also (more) in influencing in positive ways the great majority of health care transactions that never give rise to litigation. So I�ll always be trying to connect goals of tort liability � injury prevention, compensation, justice � to procedures that don/t depend on actual litigation, and that in fact are much closer to the process of delivering health care than to the process of resolving disputes in court. For example, I�m generally in favor of ADR, but I�m more enthusiastic about early disclosure of error and mediated discussions that are essentially an extension of giving good medical care (see the report by Carol Liebman and Chris Hyman on the Pew project website, www.medliability.org) than I am about pre-trial mediation or formal arbitration. Similarly, I think it embarrassing to physicians, as well as counterproductive to speedy, low-cost dispute resolution that the way many patients find out the details of possible medical errors is by consulting a lawyer, who in the course of declining the representation does a little investigation and explains to the patient what happened and why. Lawyers shouldn�t be doing physicians� jobs. I also care a lot about defensive medicine, and other consequences for health care of how physicians perceive the liability system. And I very much want to find a way to compensate � using the term broadly to encompass information, restoration of trust, and future prevention as well as monetary payment � a much larger percentage of patients who experience undesired outcomes of medical care than litigation offers.

I�m delighted, for example, that you are also concerned about the ill effects of delay after medical injuries occur. And I would love to join forces with you on getting the employer community involved in testing better alternatives to malpractice litigation. Regarding my personal interest in having Medicare sponsor a pilot program, I agree that political concerns are important. However, it is easy to document that seniors currently are very, very poorly served by the tort system, which might well bring AARP on board. Moreover, I would welcome serious engagement by AARP and other powerful health care constituencies; as I noted in my first contribution to our discussion, I think that the principal political barrier to constructive malpractice reform has been that litigation politics, not health care politics, has controlled the debate. How costly a better system for Medicare patients would be is a legitimate concern; one reason to do demonstration projects is to find out.

Let me turn now to your comments that don�t relate to medical malpractice. Your distinction between business and profession no doubt reflects real concerns about trial lawyering, but I think it raises more questions than it answers. A first question is the compatibility between the attributes of professions that you and I both value and the social benefits of competition for professional services that you and I value as well. Ron Gilson wrote years ago that market power is probably a precondition to professionalism, and your ambivalence about advertising, joint venturing, and other competitive behaviors when engaged in by lawyers supports his insight. Competitively insulated lawyers occupying �elite� roles probably will exhibit fewer unseemly behaviors. Noblesse oblige. At the end of the day, then, I suspect that the best society can do with respect to law or medicine is to police serious abuses of market power and create incentives for professionals to further the expressed interests of their patients or clients, but otherwise encourage the exercise of professional authority and judgment. I do, however, think that professionals should have public obligations in exchange for these privileges. In other words, I do not view professionalism as compatible with a pure individual advocacy model. As I�ll come back to later, I think these public obligations � which I usually call �regulatory duties� � need to be enforced directly rather than piggybacking them on the �relational duties� owed by individual to individual (a distinction I apply beyond the professional context).

In malpractice litigation, for example, a lot of problems both real and perceived reflect the number of �amateurs� representing plaintiffs. Malpractice cases are complex, protracted, and consequently difficult and expensive to litigate. In a contingent fee system, experienced plaintiffs� lawyers seldom accept even winnable malpractice cases with potential damages under $100,000 ($200,000 in some states). Experienced lawyers routinely reject cases that are meritless, or even speculative. However, there are so many lawyers in the U.S. who represent individuals in personal injury cases that, even if most take on a malpractice claim only very occasionally, inexperienced lawyers account for a substantial percentage of malpractice litigation in the aggregate. (And, of course, many negligent injuries that have serious financial implications for patients and their families go both lawyerless and uncompensated.) Certificates of merit, screening panels, and other requirements designed to reduce frivolous litigation assume the inexperienced lawyer; experienced lawyers police their own cases quite effectively, even without a loser-pays system. Applied across the board, however, screening panels in particular can be cumbersome and cost-ineffective. As you know, I�d like most medical errors to be prevented, and the ones that occur to be compensated outside of the courts. But in general I would also support reforms that got the amateurs out of the medical malpractice business � they tend to take bad cases and handle them badly. By contrast, the �name� plaintiff lawyers who handle malpractice cases exclusively, or nearly so, usually impress me with their case selection as well as their ability to generate ample settlements for their clients. Perhaps careful attention to competitive conditions in litigation markets would cause specialization to emerge as an efficient outcome, and I�d be happy to consider reforms that might tend in that direction. But it is also possible that, in order to preserve professionalism, a regulated oligopoly of malpractice plaintiff�s lawyers is preferable to a free market.

On the other hand, I�m afraid I don�t understand your assertion about lawyers uniquely having the power to take property from parties without their consent. I don�t think this is an economically or politically coherent �monopoly.� One could equally say that lawyers are empowered to reclaim property on behalf of those who have had it taken from them without their consent. Such is the adversarial system, and only the neutral arbiter can decide which party is entitled to take or reclaim. What you call �redistribution through force,� others might regard as �justice through law.� Depending on the context, there could be some truth to each perspective. Plus there are many lawyers who help create wealth, even if some wealth creation eventually devolves into redistribution through litigation. And though I agree that litigation is an extremely inefficient form of redistribution, I doubt that even the most successful class action lawyer would regard litigation as a principal form of redistribution in society. So we�re left, as we should be, assessing each practice area separately for its costs and benefits, rather than condemning the litigation enterprise en masse.

It is also difficult to buy into your generalization about the victimization of defendants. Although struggling family physicians and rural hospitals are often the public face of tort reform, most defendants in the cases you complain about are large corporations. I agree that courts� tendency to add zeros indiscriminately to damage awards involving corporate defendants is problematic. Like you, I was dismayed by the Vioxx award. And I take account of the issue in my own proposals for enterprise liability in malpractice cases; decoupling medical negligence from a sympathetic individual physician defendant and assigning it to a faceless commercial entity creates real risks of excessive compensatory and undeserved punitive damages. For that reason, the malpractice working group of the Clinton health reform task force proposed capping damages if universal health coverage were accomplished through competition among accountable managed care plans bearing enterprise liability.

But the rhetoric of forcible taking simply doesn�t suit this category of defendant. It is rare as hen�s teeth for contingent fee or class action lawyers to victimize the poor defendant; there�s no financial reward for doing so. The most attractive defendants are the richest ones, who are far from powerless against the supposed monopoly of force that you ascribe to plaintiff�s lawyers, and who engage to an even greater degree in over-the-top marketing. I actually think Merck behaved quite well with respect to Vioxx considering the financial importance of the drug to the company. But it can hardly be called a passive victim. For every ad currently warning of the dangers of Vioxx and marketing legal services, there were dozens of ads by Merck touting the drug�s supposed benefits before it was withdrawn from the market. Sure, Bayer wasn�t sued, but Bayer didn�t lead consumers to believe that aspirin was better than existing drugs when it really wasn�t, and Bayer didn�t price aspirin for the lucrative, patent-protected, health-insurance paid, prescription-dependent market. This doesn�t absolve the trial bar of its own excesses. Nor does it excuse courts who get the science wrong: much as I think that the Supreme Court�s decision in Aetna v. Davila was a missed opportunity to clarify ERISA preemption, there�s a delicious irony to dismissing a large-dollar claim brought by a patient who alleged he was wrongfully denied Vioxx at the same time that millions of other patients have lawyers alleging they were wrongfully given Vioxx. However, it does make it seem absurd to single out the plaintiff�s bar for its political and financial muscle.

That said, I think a market analysis of personal injury litigation is well worth doing. Your twist on the �who is the consumer� question so central to health insurance is clever: considering defendants the �buyers� because they end up paying the bills through contingent fees. I agree that solves the problem of looking for an authentic consumer of class-action litigation, but overall I�m skeptical that it is the first direction in which one should take the competition policy of litigation. In many ways, contingent fee litigation (and certainly hourly fee litigation) is an easier market to analyze than medicine because there are clear financial gains to trade in most circumstances, so that willingness to pay for legal services equals ability to pay. In medicine, a lot of services are needed or desired by people without the means to pay, even through insurance mechanisms, so the issues of social subsidy are more important (and the idea of paying for successful performance not self-enforcing). There are certainly many areas of litigation that don�t come with a financial payoff and therefore that require public support, but not personal injury lawyering � though I�ll readily admit that we overly depend on financial payoffs in malpractice litigation to attract lawyers even when clients would prefer information, apology, and other non-monetary redress for their grievances.

I prefer more grounded inquiries regarding markets for legal services. For example, I take very seriously the point Lester Brickman makes about lack of competition for contingent fees, so that fees do not increase with risk of failure. I�m also very interested in referral patterns. One of the big issues in Pennsylvania during the current malpractice crisis was venue reform, with health care providers desiring to keep cases in their local communities rather than having them transferred to plaintiff-friendly Philadelphia. There are unanswered normative and factual questions here. Are Philadelphia juries too friendly to patients, or are other parts of Pennsylvania too friendly to physicians? Is it unfair to send a case to Philadelphia just because the suburban hospital where the doctor practiced was affiliated with an urban academic medical center, or was the prestige of that affiliation one reason why the patient sought care from the suburban physician and hospital in the first place? But these issues aside, the success of any particular venue reform in public policy terms depends in part on the law and norms governing lawyer referrals, including the point I raise above regarding the general desirability of having malpractice cases handled by specialists. And I�m fascinated by your insight that lawyers collectively profit from wins, making the competition to gather clients the only meaningful competitive issue. I suspect there are many industries where competitors want each other to succeed in opening up new markets, but you certainly raise questions worth examining in specific practice areas regarding imperfections in the market to attract clients, in the price of legal services, in entry barriers, etc.

Your discussion of federalism and repeated bites of the litigation apple raises a related second question: who should supervise lawyers? One difference between law and medicine is that the judicial branch of government claims a near-exclusive right to regulate the former, while the latter � when not allowed to regulate itself � is subject to a broader set of legislative, administrative, and judicial constraints. Both systems are susceptible to capture, but you are probably right that lawyers� groups find it easier to capture elected judges in some states than doctors find it to capture their overseers. There are also other limitations and confusions that likely arise from the more insular regulatory framework applied to lawyers. Take your concerns about deceptive marketing, for example. Attempts to rein in lawyers typically come from the judiciary and therefore constitute state action subject to the First Amendment (but immune from antitrust enforcement). Attempts to rein in doctors typically come from private professional associations, which by contrast are subject to antitrust review but not to the First Amendment. I think the latter approach is more effective at policing the abuses that worry you (not to mention the risk that courts will confuse the two standards, as Tim Muris believes has occurred to the detriment of consumer protection). On the whole, then, I am relieved rather than concerned if both doctors and lawyers come to think of themselves as participating in regulated industries as well as ethical professions (e.g., when Congress or the SEC imposes public obligations on securities lawyers).

A third question is the relationship between litigation and legislation/regulation. I think there needs to be a relationship rather than an either-or choice, and I�m encouraged when you allow for the possibility of private redress � however circumscribed both substantively and procedurally � as part of public regulatory systems. As I�ll get to shortly, for example, I think drug product liability should be integrated with (but not merely preempted by) federal regulation. The broader issue for me, however, is as follows. I believe that many of the excesses of personal injury litigation � and, yes, I do believe there are excesses � arise because general �regulatory� obligations to society as a whole become entwined in the courtroom with specific �relational� obligations of defendant to plaintiff, with the unhappy result of applying causal standards and awarding damage amounts that try to encapsulate aggregate, impersonal interests using the emotional, personal context of an individual grievance. Strongly relational duties such as those between health care providers and patients are particularly susceptible to this conflation. For example, �conflicts of interest� are used incoherently in the regulation of medical research because societal interests in innovation, public confidence in medicine, and avoidance of unnecessary harm map poorly onto a the popular image of a �researcher-subject relationship� that is drawn from longstanding beliefs about doctors and patients. But the conflation of relational and regulatory duties also happens whenever an aggregate economic harm can be portrayed in relational terms, often as fraud or misappropriation (e.g., fraud-on-the-market, insider trading, fraudulent conveyancing, fraudulent concealment, unfair business practices). The punitive damages debate is a core example of how the legal system can be blind to these effects because it communicates so poorly with other regulatory systems. Cathy Sharkey�s article describing punitive damages as �societal compensatory damages� is such an important contribution because it states the obvious in a way that allows many people to see it for the first time.

One can think about class-action lawyering and individual client lawyering in these terms, though to do so one has to acknowledge that lawyers who pursue these careers tend to have very different modal beliefs and incentives. Let�s leave lucre aside, and stipulate that all these lawyers want to do well financially. In my experience, lawyers for individual clients see themselves as the last bastion of defense against the predations of either overreaching corporations or overreaching government. Your objections seem to go only to the former commitment, but in terms of the latter some plaintiff�s lawyers have quite principled objections to the sort of administrative compensation system that I would like to see replace malpractice litigation in the majority of situations. They express these in quasi-libertarian terms as discomfort with �social engineering� and a preference for helping individual clients vindicate infringement of their basic liberties in the insulated courtroom setting where nothing (supposedly) matters other than the single plaintiff and the single defendant. Class action lawyers, in my experience, are a totally different breed: �legal wholesalers� who lose interest in cases as soon as the need to explore individual situations in any detail becomes evident. As you relate, many class action lawyers see themselves as clientless policy entrepreneurs. The tobacco litigation is a perfect case in point: as several commentators have observed, the global tobacco settlement was a large, undemocratic tax on smokers that class action lawyers were paid a fortune to impose because elected officials didn�t want to.

Similar analyses can be made of the managed care and non-profit hospital class action litigation. I agree with you that the claims were a stretch legally, and that both the administrative costs and the potential damages were disproportionate to the public benefits. But the public policy problems were quite real. In the managed care litigation, the court was asked to decide what consumers should be told about their health care in a seemingly new, more competitive health care system. As Clark Havighurst has written, if these cases had been litigated to conclusion the courts would have been put in the ironic position of crafting aggregate information disclosure principles after decades of individual litigation in which those same courts resisted the idea that patients could ever make informed health care purchasing decisions. In the nonprofit hospital cases, it is quite true that people without insurance are charged much higher �list prices� than patients who have private insurers on their side to negotiate discounts. When I was a medical student, I noted that it �cost� much more to be seen at the public pediatric clinic in San Jose, California than in a plush private office in nearby Saratoga � nearly all patients at the public hospital had Medicaid, making the list price irrelevant, and the hospital was not about to miss out on overcharging an occasional paying patient who stumbled in. But failure to pay these higher rates has real consequences for patients in terms of their credit ratings, budgeting decisions, and self-esteem. In both cases, then, one can view class action litigation as a misguided attempt to do what the regulators wouldn�t. Some class action lawyers display amazing hubris when they publicly claim to be more effective than Congress in bringing powerful industries to heel, but one has to admit, however regretfully, that they occasionally have a point.

Turning to pharmaceutical litigation, we have many points of agreement: that the Vioxx judgment was absurd, that good drugs like Bendectin shouldn�t be forced off the market, that vaccines are not sufficiently profitable to cover potential liability without tort immunity and an alternative compensation arrangement. I�m more skeptical about the assertion that liability in general is crippling pharmaceutical innovation; these are successful companies that make terrific products and have every expectation of continuing to do so. They also have sophisticated ways to protect themselves: Dow Corning, I seem to recall, was a limited purpose joint venture that was driven into bankruptcy by breast implant litigation, but its structure assured that its much larger corporate parents would be spared. One more illustration of the fact that one could teach virtually every graduate program just using the pharmaceutical industry: medicine, business, law, most natural and social sciences, philosophy, even perhaps divinity.

It is rather hard to view the FDA as currently providing a comprehensive regulatory scheme because its political evolution has been piecemeal. It evolved over roughly 100 years � not smoothly but in leaps following scandals � from a disclosure statute to a screening process for safety to a screening process for efficacy. Interesting factoid: the pre-1938 FDA wasn�t empowered to stop the sale of sulfanilamide �elixir� because it was killing people, and could do so only because it was misbranded (an elixir means dissolved in alcohol; the manufacturer was using poisonous diethylene glycol instead). But the FDA has virtually no authority over physicians, and therefore can do next to nothing about �off-label� use. Nor does the FDA have authority to withhold approval for drugs that work no better than existing drugs, or drugs that are incredibly expensive for the benefit they offer. And post-marketing surveillance remains mediocre. How, then, can one rely on FDA to safeguard consumers and patients from all the serious risks involved in taking new drugs?

Of the points you make about pharmaceuticals, I�m most interested in the role of FDA regulation in adjudication of injury claims. I think preemption is the wrong path. Instead, I would very much like to see FDA�s expert determinations being used constructively in litigation to supplement adversarial testimony, and I would like to see evidence from drug product liability cases being used by FDA to assist its post-marketing surveillance efforts. For example, one could envision an administrative process within FDA being used to adjudicate personal injury claims and provide limited compensation. I was glad to see you express interest in an administrative adjudicatory scheme of some sort. I haven�t thought this through in the same detail as my malpractice proposals, but Cathie Struve recently published an article in Yale Law School�s health policy journal outlining a constructive relationship between civil procedure and administrative processes in pharmaceutical regulation. The key point is simply that one can improve the relationship between litigation and regulation rather than choosing one over the other.

I would be happy to discuss your specific FDA proposal with you at another time; I don�t think general readers would get much out of our debating the details in this forum. We would likely agree on many things, but disagree on a few based either on our making different policy choices or our having different predictions of the incentives created by a particular approach. For example, your argument that malpractice is more naturally governed by tort than product liability because �doctors are negligent all the time� is interesting, but my reaction is that doctors� negligence is defined by a professional standard that they set, while drug manufacturers have no such professional underpinnings. Do you mean to suggest that preemption of tort claims should depend on whether an industry is largely self-regulating (tort allowed) or largely regulated externally (tort disallowed)? That strikes me as the wrong line to draw, if lines can be drawn at all. Similarly, when you imply that healthy people should have an easier time than sick people asserting a claim for injury from medical care (including pharmaceuticals) because the latter assume the risk, there are conflicting values at issue. I certainly like the idea of holding drug companies to a stricter standard when they are marketing those products to marginal consumers than when they are serving the core group of patients who indisputably need their products (e.g., for Vioxx, people at high risk of gastrointestinal bleeding with older drugs). Informed consent law basically follows this paradigm. On the other hand, there are good reasons not to give a free pass to those who do a bad job treating the desperate. Loss-of-a-chance doctrines opt for this paradigm when they allow patients to sue even if they would more likely than not have died regardless of whether competent medical care was administered.

Your overall take on regulation probably doesn�t differ hugely from mine, but I admit to being baffled by how you get there. You distrust courts. You distrust legislatures. But for some reason you seem willing to bet the farm on expert administrative agencies. In practice, of course, these bodies are seldom insulated from politics, but take direction from non-experts in the executive branch and constantly mix it up with both legislatures and courts. Remember how the FDA was complicit in breast implant litigation? It imposed the moratorium in large part because it feared being out of step with the courts and therefore the public, and the moratorium was a billion-dollar gift to the trial bar in surfacing plaintiffs and biasing jurors.

How far would you really trust administrative processes to make binding cost-benefit determinations? Let�s say � just picking a random example � that you love to eat very, very rare hamburgers. If an administrative agency, acting within its authority, determined that very rare hamburgers should be banned because of the risk of bacterial contamination, how would you feel? And if the agency didn�t ban very rare hamburgers, how would you feel about the restaurant that serves you a negligently contaminated one because it no longer has to worry about being held individually accountable in court?

Anyway, this has been a fun, interesting exchange, but all good things eventually must end. Here�s my bottom line on the Trial Lawyers, Inc.: Health Care report. To me, there is a huge disconnect between the sweeping assertions and unyielding positions contained in the report itself and the thoughtful, nuanced, open discussion that you and I are conducting. Painting the world in black and white is a trick of the trial bar (and of partisan politics). Both vocations follow adversarial scripts. We all know that reality shades gray. So why can�t we remember that in policy discussions? For example, as I said previously, I�m all for litigation reforms, including non-litigation avenues for individual redress, that incorporate attributes of a regulatory model where that model is superior. I just don�t see why embracing regulatory or self-regulatory processes requires totally condemning adjudicatory ones.

A related point in conclusion. Another trick of politicians and the trial bar is to make the opponent seem as big and scary and single-minded as possible. Take managed care litigation. Skilled plaintiff�s lawyers made it seem like every bad thing that happened to patients in the 1990s was the fault of HMOs. This was because managed care, at least as it developed initially, attempted to put commercial �brands� on what remained decentralized, disorganized processes of care. So every conceivable injury got lumped together under the brand-name umbrella, with predictable results in courts of law and public opinion. Think of Helen Hunt�s famous expletive in �As Good As It Gets�; if anything, managed care did better than unmanaged care treating asthma (which her character's son suffered from), not worse. Your report plays the same aggregation trick with personal injury lawyers. You know perfectly well that class action lawyers behave differently than lawyers representing individuals, and that specialists in particular fields behave differently than generalists. You know that the range of skills for lawyers is much wider than for physicians, with much lower median incomes. You know that many trial lawyers barely scrape by, and that many people with legitimate grievances have no place to turn for help. But you don�t acknowledge these subtleties in your report for fear of diluting or confusing your message. Instead, in a move that would make any litigator proud, you assemble a horrendous beast called Trial Lawyers, Inc.

Which brings me to my last question:

Why flatter trial lawyers by imitating them?

With warm regards,

Bill

PS As I promised in an earlier post, here are citations to a few articles on medical malpractice and on the relationship between lawyers and health care.

Selected Bibliography

Sage WM. Malpractice Insurance and the Emperor�s Clothes. DePaul Law Review 2005; 54(2): 463-484 (Clifford Symposium on tort law). Available at http://medliabilitypa.org/research/files/depaul-sage062105.pdf

Kessler DP, Sage WM, and Becker DJ. The Impact of Malpractice Reforms on the Supply of Physician Services. JAMA 2005; 293(21): 2618-2625. Available at http://jama.ama-assn.org/cgi/content/short/293/21/2618

Studdert DM, Mello MM, Sage WM, DesRoches CM, Peugh J, Zapert K, and Brennan TA. Defensive Medicine Among High-Risk Specialist Physicians During a Malpractice Crisis. JAMA 2005; 293(21): 2609-2617. Available at http://jama.ama-assn.org/cgi/content/short/293/21/2609

Black B, Silver C, Hyman DA, and Sage WM. Stability, Not Crisis: Medical Malpractice Claim Outcomes in Texas, 1988-2002. Journal of Empirical Legal Studies 2005; 2(2):207-259. Available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=770844

Sage WM. New Directions in Medical Liability Reform, in Malpractice and Medical Practice Handbook (Richard Anderson, ed.). Totowa, New Jersey: Humana Press 2005: 247-278.

Sage WM. Reputation, Malpractice Liability, and Medical Error, in Accountability: Patient Safety and Policy Reform (Virginia A. Sharpe, ed.). Washington, DC: Georgetown University Press 2004: 159-183. Available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=681925

Sage WM. The Forgotten Third: Liability Insurance and the Medical Malpractice Crisis. Health Affairs 2004; 23(4): 10-21 (lead article). Available at http://content.healthaffairs.org/cgi/content/abstract/23/4/10

Sage WM. Unfinished Business: How Litigation Relates to Health Care Regulation. Journal of Health Politics, Policy, and Law 2003; 28(2&3): 387-419 (special conference issue, �Who Shall Lead?�).

Sage WM. Medical Liability and Patient Safety. Health Affairs 2003; 22(4): 26-36.

Sage WM. Understanding the First Malpractice Crisis of the 21st Century, in 2003 Health Law Handbook (Alice G. Gosfield, ed.). St. Paul, Minnesota: West Group: 2003; 1-32. Available at http://medliabilitypa.org/research/law1103/chapter.pdf

Institute of Medicine. Fostering Rapid Advances in Health Care: Learning from System Demonstrations (Janet M. Corrigan, Ann Greiner, and Shari M. Erickson, eds.). Washington, DC: National Academies Press: 2002. Available at http://www.nap.edu/books/0309087074/html/

Sage WM. The Lawyerization of Medicine. Journal of Health Politics, Policy, and Law 2001; 26(5): 1179-1195 (Special Issue, Kenneth Arrow and the Changing Economics of Medical Care, Peter J. Hammer, Deborah Haas-Wilson, and William M. Sage, eds.).

Sage WM. Enterprise Liability and the Emerging Managed Health Care System. Law & Contemporary Problems 1997; 60(2): 159-210 (symposium on medical malpractice law) (published in 1998).

Hi, Peter; we�ve had pleasant discussions before, and I look forward to this one.

I�ve long been frustrated by the state of medical malpractice: cases like this, these, or this. These cases are more than just anecdotes. First, the big-money awards, even if they are outliers, distort the system for everybody, because insurance is based on expectations and worst-case scenarios (which are arithmetic means and variance) rather than the medians that so many statisticians use to argue there is no problem with the system. But they also reveal an underlying randomness that disturbs one sense of justice. Even if one believes that the legal system gets it right most of the time (and even the recent study reform opponents cite shows a shockingly high error rate), the chance of a jackpot verdict encourages meritless litigation.

One partial solution is non-economic damages caps. Unbounded incommensurate damages are an appeal to a jury�s prejudices and sympathies, and cannot be rationally calculated. Replacing them with a schedule or legislatively-created bounds is a sensible solution, and one that both constrains the effect of legal errors and reduces the incentive to bring meritless litigation or litigation where the measurable economic effects are small.

But that solution is only a partial solution, because a large part of the problem is the big-money cases where doctors are blamed for the happenstance of being present for bad results. Outcome bias significantly affects even trained professionals; there is no reason to think lay juries do better. As I noted when I first raised this issue, using non-economic damages caps to reduce an erroneous $30 million verdict to an erroneous $15 million verdict is unlikely to be a satisfactory solution.

What struck me is the number of anti-reform advocates who not only argue that the status quo should not be reformed, but that there isn�t enough malpractice litigation. In his book, The Medical Malpractice Myth, Tom Baker essentially argues that there should be twenty times more malpractice litigation than there is. Baker does not seem to have thought out the consequences of his conclusion, which is that the amount specialist doctors should pay in malpractice damages and expenses should exceed the amount that doctors currently receive for giving medical care. That is, to say, that Baker�s arguments make sense only if you believe that medical care would be better off if it weren�t for all these damn doctors, since very few would continue to practice under such circumstances. Baker�s proposal ameliorates the financial effect on individual doctors (if not the additional cost of spending time performing CYA documentation and depositions) through enterprise liability, but the impact is the same: the marginal expected value of an additional doctor to an enterprise would be negative, and the costs of providing medicine would skyrocket, if not completely collapse.

Baker�s statistics are based on the Institute of Medicine study, which alleged that some huge number of deaths were attributable to �medical errors,� though the study didn�t distinguish between deaths that shortened life by a matter of minutes and those that cut short a life by years or decades. Studies like IOM�s bother me when they�re cited by either side of the debate: if IOM�s methodology for determining �medical error� is accurate, why do we not prefer it to that of the legal system? (And if one believes the small sample in the IOM study, the legal system was not much more accurate than a coin-toss.) But the problems with IOM�s methodology struck me: as Richard Anderson noted, the study determined negligence by averaging together two doctors� assessments of the records, and disagreement was frequent. The Institute wasn�t even able to reproduce its results.

Combine the lack of consensus within the medical profession as to what optimal care is with the problem of outcome bias, and one can only conclude that the legal system is incapable of second-guessing discretionary medical decisions. And that is before we get to the inherent inefficiency of a compensation system that devotes a majority of every dollar to the lawyers and witnesses and administrators rather than the �victims.�

I am a firm believer in judicial modesty. There are some questions that the judicial system is not well-equipped to answer, and when it does try to answer them, it is at least as likely to make things worse as better, which suggests that it is better not to make the attempt at all than to impose the gigantic costs of litigation in achieving a random walk in public policy.

In my series of posts, I noted the �business judgment� rule, (a comparison I�ve since discovered doesn�t originate with me), but courts abstain from interfering in all sorts of discretionary decisions besides those of business judgment for officers and directors: immunities are granted for judges, for the discretionary decisions of government officials, for volunteers, for government officers operating in unclear constitutional territory. Though legal professionals are hypothetically held to the same standard as doctors, in practice, they are granted far greater scope of immunity. In each case, the immunity is justified by the courts because of the fear of that liability would deter socially beneficial activity.

Why not give that same immunity to the discretionary decisions of medical professionals?

That is not to abolish the action of medical malpractice. When one sees anecdotes defending medical malpractice suits, they point to the cases of the inebriated doctors, the surgeons who operate on the wrong limb, the wrong medication (or dosage) issued to a patient. But these are different kind of medical malpractice than the second-guessing kind that disturbs medical professionals.

Perhaps it really is the case that the medical profession is full of butchers who can�t wait to sloppily kill their patients through negligence the second the fear of medical malpractice liability is removed. But I strongly suspect that medical quality would improve, rather than decline, from the addition of legal certainty to the process by the addition of discretionary immunity. If nothing else, the experiment would give us sound data on whether the status quo is a net positive or negative compared to the alternative.

To keep the mutual admiration society going, I'll note what a pleasure it is not to have to debate basic issues like the fact that malpractice insurance rates are based on malpractice insurance costs.

1. In return for that reasonable concession by you, I'll make one of my own. I agree: increased malpractice liability will deter some malpractice, at the margin. I'll even go further and note that not all defensive medicine is unambiguously bad; while some defensive medicine imposes costs and adds health problems, other defensive medicine merely inefficiently improves health outcomes.

2. The issue though, is not minimizing malpractice, but maximizing health outcomes. And there's every reason to believe that, at the margin, malpractice liability for discretionary decision-making deters not just medical malpractice, but medical practice. The reason is because, for the class of lawsuits we're discussing here--the ones that don't involve drunk doctors or those who amputate the wrong leg--the lawsuit is based upon second-guessing the decision of the doctor. This doesn't incentivize the doctor; in a number of suits, the doctor faced with the same decision would do the exact same thing. The deterrent effects are perhaps to increase defensive medicine or time spent documenting CYA notes to patients' charts instead of practicing medicine. Or to leave medicine entirely.

3. To illustrate this, imagine a world where police just randomly arrest people in a community without regard to guilt or innocence. Length of prison sentence or criminalizing or legalizing�certain acts would be irrelevant to deterrence, because the risk of a lengthy prison sentence would go up or down equally for the innocent as well as the guilty. I'm not saying that the medical malpractice system is that arbitrary and capricious. It's not. But it's not much better. Insurers are unable to predict in advance which doctors will be sued, except within broad occupational categories. As a result, to the extent that there are "bad" doctors, they're not treated much differently than the good doctors, and those that are are the ones who would still be liable in a world with discretionary immunity. My hypothesis is that, because good doctors outnumber bad doctors, and because the status quo is so imprecise and inefficient, more good doctors are being deterred from practice than bad doctors are being deterred from malpractice--and the concomitant effects on health outcomes from the system are negative.

4. Empirical work bears this out. For example, Jon Klick's work finds that infant mortality rises in states without damages caps. A slight decrease in medical quality is apparently outweighed by the decrease in practicing obstetricians from the increased costs of the system.

5. It interests me when people complain about reform proposals as "dangerous experimentation." We've tolerated a substantial expansion of liability for medical professionals through judicial experimentation, in part because judicial decisionmakers are frequently looking solely at the case in front of them based on procrustean legal principles rather than the consequences of that case on the system as a whole; but John Edwards has suffered no consequences for helping to create a legal environment that has perhaps resulted in hundreds of extra infant deaths in North Carolina. (And the expansion in the field of medical malpractice is nothing compared to the experimentation the judicial branch has engaged in without empirical basis when it comes to products liability, securities litigation, and criminal procedure.) Why is the judicial branch the only one allowed to experiment? What happened to the famous laboratories of democracy?

6. A judge can cause a great deal of damage through an erroneous opinion; an executive can lose thousands of investors billions of dollars through an erroneous business decision; a do-nothing police department can cost hundreds of lives and cause tremendous damage to the local economy. Yet we accept that to impose liability in such situations would do more harm than good. The consequences of negligent medical practice in the course of discretionary decisions are not so great that it is not worth exploring redefining the lines of liability given the evidence that second-guessing discretionary decisions is causing more harm than good on the deterrence side and only randomly fulfilling compensatory principles.

7. There are certainly other alternatives: Common Good's idea of medical courts; testimony of court-appointed experts; taking cerebral palsy cases out of the legal system the way we do with vaccine injuries. But when there are serious scholars arguing that there should be more than ten times as much malpractice litigation as there is now under the current liability standards, it's time to ask what's so special and untouchable about the current liability standards.

8. But even if one is disinclined to be on the "bleeding edge" of policy-making, that's no argument against scaling down the scope of liability. We wouldn't be the first to do so. Doctors in New Zealand can't be sued, and show no evidence of erring more than their liable American compatriots.

9. How do we compensate those injured by discretionary medical malpractice? It's not clear to me that this is a prerequisite. Not every injury requires compensation. There isn't compensation for someone who keels over from a sudden brain aneurysm or is struck by lightning. The family of someone brutally murdered in Georgetown by a paroled armed robber doesn't get compensation. Sometimes the loss just falls where it does, and it's not clear to me why an adverse medical result caused by a discretionary medical decision should be any different.

10. But one answer to the compensation question is insurance. Health insurers could offer additional coverage for losses caused by malpractice, and that would certainly create a market incentive to ensure that doctors weren't committing medical errors or skimping on cost-effective procedures, and HMOs are better situated to do that oversight than courts or attorneys or individual patients. (If there really is a problem with a handful of incompetent doctors, this would be the surest way to suss them out.) Insurance would also end the controversy over damages caps: patients could choose for themselves how much insurance they want for pain and suffering.

Aspirational politics

July 20, 2006 2:45 PM

Peter, my apologies for the delay in posting.

The idea of a top-down "safe harbor" for medical malpractice is one that's been discussed elsewhere. I worry that such centralized planning, implemented on a widespread basis, might ossify medicine and make innovation difficult or impossible. It seems to me that it can only help on the margins, in some narrow areas, though the savings and improvement in health care might well be significant. At the level of implementation, however, the questions become one of medicine, rather than law, and I defer to the doctors on the ultimate wisdom of the scope of such proposals, and I haven't seen enough on the pro or con side to know whether they'd be efficacious or worth the candle.

You raise a good point about the political feasibility of a wholesale change in medical malpractice law. The trial bar is a powerful interest group that is successfully blocking smaller incremental improvements. But, as we discuss public policy, I'd rather start with what we want an ideal system to look like before we resort to what the second-best measures are in the universe of the feasible. If everything came down to popularity, you and I would have to shrug our shoulders and replace evolutionary biology with the study of astrology and angels in public schools.

That said, it's not clear that I'm proposing anything that couldn't be passed in a generation, especially as more data comes down the pike about the costs and unworkability of the status quo. Tax simplification and airline deregulation must have looked politically impossible once upon a time.

Would "No doctor shall be held liable for his or her good-faith reasonable discretionary decisions in the practice of medicine" really be so troubling to the average voter? I think that appeals to people's fundamental sense of fairness. When I see ATLA and its Orwellian successors complain about medical malpractice reform, the examples they use of horror stories—body parts erroneously amputated and so on—wouldn't fall within this exception.

And I disagree with you that such language would require a top-down codification before it could be imposed. We don't need top-down codification in the business judgment context or for immunity for discretionary governmental decisions. The language I propose would simplify medical malpractice cases considerably. Early summary judgment would be possible in many a case, much as it is in the business judgment context, and the change in the legal landscape would change the cases that are brought.

There's a danger any reform not well implemented will be "leaky" through the efforts of creative attorneys or recalcitrant judges, so I don't pretend that this language is more than a first cut that could be improved. But we have time to perfect that between this initial discussion and the point when the political process is ready to consider more creative solutions.

Svorny's shaky premise

December 5, 2011 10:15 AM

Ted Frank

Shirley Svorny's paper for Cato arguing that caps on medical malpractice damages hurt consumers got a lot of attention. I found the paper very disappointing, however: it cherry-picked studies and ignored real-world practices by largely assuming away the problem. As such, it was not just contrarian, but counterproductive.

Virtually everything in the paper is premised on the idea that there's no haphazard aspect to medical malpractice liability: "Researchers have found that awards are not haphazard. The medical malpractice system generally awards damages to victims of negligence and fails to reward meritless claims." That adverb "generally" covers a lot of room, however, and is too thin a reed to sustain Svorny's first sentence, much less eventual conclusions. Svorny's paper engages in a non sequitur: Svorny correctly refutes the idea that the malpractice system is completely haphazard, but she then proceeds under the presumption that the system is therefore not at all haphazard. This fails to consider the ramifications of the intermediate case. A hypothetical judicial system that gets it right 60% of the time, for example, "generally awards damages to victims of negligence and fails to reward meritless claims," as Svorny correctly states the status quo does. But that 40% error rate would still be the sort of haphazard results that call for a policy response. We don't see an error rate of 40% today. But we do see one large enough that we need to consider alternatives to an unfettered liability regime.

Svorny, for example, trumpets the success of insurers working with anesthesiologists to reduce medical error. But she takes the wrong lesson from that experience. Anesthesiologists improved their safety record considerably, reducing patient deaths an astounding 97% over twenty years, thanks to adoption of some basic scientific techniques in a practice that was previously more of an art form. That wiped out their medical liability problem, right? Wrong: anesthesiologist malpractice insurance costs have dipped only 37% in real dollars. I seem to be the only one who's noticed this disconnect, but it sure indicates a lot of haphazardness to me. Anesthesiologists are unique in the medical profession: they were unnecessarily killing scores of patients in the twentieth century. I'm not aware of any other branches of medicine that would benefit to the same extent that anesthesiology did, but the anesthesiologist experience doesn't suggest that a comprehensive insurance effort to reduce medical injuries ten percent would have much of an effect on malpractice costs, given that anesthesiologists reduced their problems thirty fold, but couldn't even halve their malpractice costs.

Svorny ignores other evidence of haphazardness. In nursing homes, for example, objective measures of quality have only a slight inverse relationship to litigation expenses: moving from the lowest-performing decile to the top decile reduces the chances of being sued from 47% to 40%. Another study found "no rational link between the tort system and the reduction of adverse events." Morris et al., "Surgical Adverse Events, Risk Management, and Malpractice Outcome: Morbidity and Mortality Review Is Not Enough," Annals of Surgery 237, no. 6 (June 2003): 844-852. 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. Brennan et al., "Relation between Negligent Adverse Events and the Outcomes of Medical-Malpractice Litigation," 335 NEJM 1963 (Dec. 26, 1996). The statistics were somewhat better in a larger study done a decade later, but far from evidence of lack of haphazardness: 40% of malpractice lawsuits are meritless, and 28% of meritless claims receive compensation.

No one is contending that medical malpractice awards are entirely random. But they don't need to be entirely haphazard to be creating more costs than they are resolving. Svorny assumes that because she has rebutted the strawman, she can base the rest of her argument on the premise that the underlying system works. And certainly, it would be true that if the system were working (or if legal errors were considerably more rare than medical errors), caps would be counterproductive. But Svorny can be correct that the system "generally" works (in the weak sense that it does outperform a coin-toss in assigning liability) while being incorrect about the conclusions she draws from that. I'll discuss that more later in the week.

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Liability Protects Patients

December 6, 2011 10:14 AM

Shirley Svorny

The medical professional liability insurance industry takes actions that improve patient safety in this country. It is liability that motivates efforts of underwriters to assess the practice risk of individual physicians and to penalize those who present such high risk, and it is liability that motivates medical professional liability insurers to take what steps they can to reduce practice risk.

If the court system were as random as some people think, there would be no reward to efforts to identify high risk physicians, to identify practices that result in bad outcomes, or to create incentives to encourage physicians to reduce their practice risk. Yet the insurance companies all make these efforts, at significant expense. Each year, underwriters at medical professional liability insurance companies review applications for insurance. They have access to a physician's entire claims history and they use professionals to evaluate the validity of the claims. Why would they do this if court decisions were random?

Admitted carriers, those approved by the state, put surcharges on the premiums of some physicians and offer credits to those who are claims free. If the level of underwriting needed to assess a physician's risk is high, the physician will be denied insurance by an admitted carrier and forced into the surplus lines market. Premiums in the surplus lines market are up to five times those in the admitted market. When new, risky procedures are introduced, the surplus lines carriers are heavily involved in assessing physician training and practice risk. The level of oversight is so high as to, where warranted, include visits to offices of physicians to assess and reduce practice risk.

The insurance industry publishes research findings based on studies of claims that highlight where risk is highest in various areas of medical practice. These findings are used by hospitals and other providers to reduce the likelihood of bad outcomes for patients. Physicians are rewarded (with premium credits) for participating in risk management courses based on these findings.

If the system is haphazard, why is all of this going on? And, why would the vast majority of cases settle before they reach trial? In a haphazard system, the potential return to a court trial would be random, not be a function of the actual negligence.

As things are, it appears that most cases that go to court are based on the mistaken belief of the plaintiff that negligence was involved when it was not, given that plaintiffs lose in the majority of cases.

We know that liability creates the kind of incentives that motivate appropriate behaviors to reduce bad outcomes. For years, it has been said that the medical malpractice industry did not create the appropriate incentives. It has been the conventional wisdom that malpractice insurance premiums were not experience rated. I found that this is not true; the industry charges risky physicians higher premiums than their same-specialty, same-location peers.

And I found much more. It turns out that not only are premiums set to encourage clinicians to reduce their practice risk (the only path to a lower premium) but the industry does a lot of other things that are likely to reduce practice risk and protect consumers.

The point is that liability works to protect consumers and that caps will reduce liability. This is especially important in this industry because consumers believe any state-licensed physician is competent. Consumers are not protected by state licensing boards (see my 2008 Cato Policy Analysis) but, instead, by an interconnected private system of oversight based primarily on liability.

Let me address two specific points that Frank makes in his post. Frank quotes an empirical study by Morris, et al., which concludes there is "no rational link between the tort system and the reduction of adverse events." If you read the article you will see that this is conclusion is not supported by the evidence. Morris and his colleagues find more system failures in cases where plaintiffs received awards. That sounds like a rational link to me. The best article I've read about the litigation process is by Henry Farber and Michelle White (RAND Journal of Economics, 1991). They describe a system that works to penalize negligence.

Frank says anesthesiologists were "unnecessarily killing scores of patients" and that he is "not aware of other branches of medicine that would benefit to the same extent." Well, no one was aware - other than, perhaps, the insurers. Many people argue it was high medical malpractice claims and premiums that gave anesthesiologists an incentive to figure out what was going on, making anesthesiology that much safer.

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Ted Frank

Professor Svorny's response commits the same error I identified in my opening post. There's an intermediate position between "the system is entirely rational" and the strawman "the system is entirely haphazard," but Svorny isn't willing to recognize it. As such, she only considers the benefits of liability, and not the costs. Certainly, when the judicial system correctly imposes costs for malpractice, it sends economic signals to reduce malpractice. But at the same time, when the judicial system imposes costs upon doctors who have done nothing wrong—and there is no doubt that it does—it sends economic signals that reduce medical practice, as well as weakens the incentive to avoid engaging in malpractice, because the marginal cost of doing so becomes lower. There becomes some point where the costs of the inaccuracies of the malpractice system outweigh the benefits, where it deters more beneficial medical practice than harmful medical malpractice. We can dispute where that inflection point is, but nothing in Svorny's paper attempts to make the evaluation in the first place, or even acknowledges that the evaluation is necessary.

The fallacy of this can be seen by a hypothetical alternative medical malpractice regime. The benevolent dictator of Fredonia, Rufus T. Firefly, reads Svorny's paper. "Ah ha!" he says, "Liability encourages insurance companies and doctors to avoid malpractice, and caps on liability harm consumers. If some liability is good, then more liability is better." Therefore, Fredonia decrees, any doctor found having committed malpractice shall surrender her entire wealth to their victim, and be executed by firing squad.

I'd hope Svorny would concede that the hypothetical (and, yes, ridiculous) Fredonia legal regime would produce health results inferior to the status quo. But to do so is a concession that excessive liability for judicial findings of malpractice can have adverse effects—adverse effects that are entirely ignored by Svorny's paper. Nowhere does Svorny's paper acknowledge the problem of incommensurate noneconomic damages (or the evidence that such damages are, indeed, relatively haphazard, or the evidence that consumers rationally prefer not to insure for noneconomic damages when given the choice in states like New Jersey), and the in terrorem effect of eight-digit noneconomic damages awards, much less how to avoid these problems without some sort of cap on noneconomic damages.

In the Huffington Post, Svorny goes farther, and says that "reducing liability, as caps do, is rarely a good idea in any situation." It seems hard to believe that Svorny actually believes that. We, as a society, reduce liability all the time because we recognize that the costs of liability exceed the benefits.

For example, most states refuse to allow a wife to sue her husband and the other woman for infidelity; a cap of zero, though the noneconomic damages from being cheated upon are just as real as the noneconomic damages in medical malpractice cases. Corporate executives have the defense of the business judgment rule: they can not be held liable by shareholders for business malpractice, even when good-faith incompetent business decisions create very real economic damages to those shareholders. In both sets of cases, the judicial system recognizes that the costs of liability and after-the-fact second-guessing exceed the benefits of judicial intrusion; indeed, we don't even blink twice in the twenty-first century that these suits are not permitted.

Closer to home, Professor Svorny's students are not allowed to sue her for any alleged educational malpractice, another cap of zero. I trust that Svorny's lack of incentives created by liability do not reduce her efforts in teaching, even though she does not have an educational malpractice insurer charging her a quarter of her salary to work with her to minimize the risk of a student not being taught properly. How much more would Svorny demand in pay to keep teaching if she were exposed to potential liability, even if she believed the system was 100% rational and had no risk of haphazard false positives? (Even if the system never fails, Svorny would face real insurance costs, assuming she's not a perfect teacher. And note that even meritless claims properly dismissed by the courts would be costly to insure, because under the American system the winner of a lawsuit does not recover costs from the loser.) How many fewer students would take Svorny's classes because they couldn't afford to pay that marginal increase in cost? Would that be a social cost militating against liability for educational malpractice or not? Why is it inappropriate to apply the same analysis to doctors?

Returning to the anesthesiologists, we know that their case is unique because their case is unique. It's not like anesthesiologists have been exposed to malpractice liability that other doctors aren't. Svorny can't have it both ways: if the risk of liability is what caused anesthesiologists to engage in sounder practices, then the reason that neurologists and obstetricians have not been able to make similar safety improvements is because they're already working at close to the optimal safety level. Svorny's argument makes testable predictions that have already been falsified: medicine in Texas (despite a fairly pathetic licensing board) hasn't gotten unsafer in the wake of caps. If anything, the state of healthcare there has improved, as more doctors have entered the state in response to the incentive of lower insurance costs. Doctors in New Zealand haven't turned into the second coming of Sweeney Todd despite the absence of any individual malpractice liability in that jurisdiction. There's no evidence for the legal system working as well as Svorny necessarily presumes it to work for her conclusions.

Certainly, Svorny is correct that caps on damages create the possibility of false negatives where legitimately aggrieved patients are undercompensated. But she fails to acknowledge that the status quo creates numerous burdensome false positives that impose real costs on doctors and consumers. The public policy goal should be to minimize the total social cost of these false positives and false negatives, but that necessary balancing is not acknowledged, much less attempted by Svorny before she issues her sweeping conclusions. Fortunately, contrary to Svorny's public-policy prescriptions, there is no liability for public-policy malpractice.

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No system is entirely rational

December 8, 2011 8:00 AM

Shirley Svorny

I do not believe, as Mr. Frank summarizes my view, that the system is entirely rational. No system is entirely rational. As Mr. Frank points out, researchers have looked at the tort system. Using the numbers in Mr. Frank's original post, if there is no negligence in 40 percent of claims and, of those, 28 percent result in awards, then 11 percent of claims are both bogus and result in damages.

It is hard to say whether that incidence is too high--we wouldn't expect any system to be error free-- but perhaps the focus should be on getting that number down. Proposals to change how the courts work, such as substituting medical experts for lay jurors have been touted as a way to improve outcomes, but Neil Vidmar cites several reputable studies that find jury verdicts on negligence are similar to assessments made by medical experts. [Vidmar, p. 369]

There are real benefits to liability that cannot be swept under the rug by laws that limit liability. Just because my students cannot sue me for educational malpractice, it does not mean it does not exist and that students are not harmed. If students could sue their professors, the outcome would probably be a lot like that for medical malpractice, but even fewer cases would move forward as educational malpractice would likely be harder to prove than medical malpractice. But, in a liability regime, education would be more expensive, many professors would take greater care in preparing their courses, and the most egregious teachers would be out of a job.

Mr. Frank mentions New Zealand as an example of a country that has no-fault insurance and people there don't seem to be dying left and right. Perhaps they have other protections in place, but it is hard to imagine what protections could be as efficient as private liability. It may be, as it was with anesthesia and hospital infections, that a level of injury is thought reasonable when, in fact, at fairly low cost, there could be significant improvements. In a 2006 paper, Linda Gorman (see p. 17) cited a study published in the Canadian Medical Association Journal that found adverse events more common in New Zealand than in the U.S. (see p. 17). Of course other factors, such as income, might explain the difference in outcomes across countries; it may not be malpractice liability.

As Mr. Frank notes, the costs of a system may outweigh the benefits. Right now we don't have much to go on to make this determination. My research on the medical professional liability insurance industry identified a benefit previously missed by analysts. Would going to a no-fault insurance system (the extreme case of caps) save enough money to offset the benefits forgone from the loss of oversight by the medical professional liability insurance industry?

The right question to ask is whether we can improve the current system in a way that reduces costs more than benefits.

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Agreements and disagreements

December 9, 2011 8:10 AM

Ted Frank

I'm surprised that Svorny is so unwilling to concede that educational malpractice liability is unquestionably a bad idea. There seems to be a fundamental disagreement between us about the transactions costs of the legal system. It's easy to think, as a theoretical matter, that legal adjudication is frictionless, but that leads to dramatic policy mistakes by courts, legislators, and regulators. (I've seen first-hand someone drag out a frivolous libel suit for two years without resolution of a straightforward legal issue.) I'm happy to agree to disagree about the merits of uncapping liability for educational malpractice, and let readers decide for themselves who has the grasp of the facts that better reflects the realities of legal-system transactions costs.

Svorny pushes her research on experience rating as demonstrating benefits to the system, but she draws the wrong conclusions from her data. There are high-risk doctors, to be sure, and low-risk doctors: why can't the surgeons be more like the pediatricians who never get sued? That sort of classification does not do much to protect good surgeons, however, since nearly all surgeons end up getting sued. And, sure enough, even Svorny's own numbers show that intra-practice experience rating doesn't make much difference: the Massachusetts insurer she looked at most closely charged 98.6% of physicians within the same 25% range, with only a tiny percentage of those getting any surcharges at all. (And even then, all she found was that the small percentage who are charged outside of that 25% range are being charged "surcharges" that sometimes reflect factors other than experience rating.) Little wonder: there does not seem to be any empirical evidence that previous claims experience predicts future claims experience once one controls for the riskiness of the practice. That's first-hand evidence of haphazardness: if medical malpractice were predictable, we'd see more effective experience rating. (Life insurance and car insurance certainly don't operate within a 25% band.) But Svorny again works with a binary metric: if it's not the case that insurers never experience rate (another strawman), then there isn't a problem with uncapped damages because insurers can always experience rate. She never asks why, if efficient experience rating is possible, it has so little effect on insurance rates.

I'm pleased to see that Svorny agrees with me that the medical malpractice legal system is not producing perfect results. I can agree with Svorny that we should look to reforms that reduce the error rate of the legal system.

What she has failed to recognize in her paper, however, is that non-economic damages caps can work to reduce the error rate of the legal system. Svorny considers only the false negatives, the cases where a cap might result in undercompensation; she never looks at the costs of the false positives, the cases where the lack of a cap results in overcompensation.

The error rate is not just the "11%" Svorny calculates in her most recent post. It's the uncompensated costs put on doctors when meritless malpractice suits are brought in the hopes of jackpot justice—another 29% of the cases. But that the other 60% of cases supposedly have merit (and, as we've seen, merit is often judged with hindsight bias, whether by lay or expert evaluators) does not mean that they're not also imposing erroneous costs. Even where an individual doctor commits malpractice, a shotgun complaint might bring in another dozen entities in the hopes of extorting a settlement. And the biggest cost of all comes from the outlier verdicts that caps are intended to address.

The problem is that the legal system is poorly situated to make judgment calls about complex medical decisions. Returning to the anesthesiologists again, even expert witnesses suffer from extraordinary hindsight bias when evaluating the quality of medical care: we can hardly be surprised when lay juries, encouraged by attorneys with an incentive to slant the evidence do not do any better. Uncapped economic damages present gigantic opportunities for injustice: John Edwards by himself won tens of millions of dollars in verdicts based on junk science. When non-economic damages are uncapped, a single outlier judgment can impose tremendous disproportionate costs that get spread across all doctors. Obstetricians or neurologists facing uncapped noneconomic damages (and the hospitals that employ them) are always at risk of an eight-digit award.

When damages are uncapped, obstetricians are playing a game of Russian roulette. If ten meritless cerebral palsy cases are brought, and jackpot-justice litigators can get a $20 million or more judgment when they win, a legal system that gets it right "only" 90% of the time will have disastrous consequences: the one error more than overwhelms the effect of the nine cases where the system got it right. A noneconomic damages cap limits the false-positive error rate of any single outlier jury. Such caps also reduce the incentive to bring low-merit/high-potential-damages cases that impose other costs on the system. Caps have benefits as well as costs. It's one thing to say that one's research shows that caps have a marginal cost that has previously been unconsidered (though the "unconsidered" part of that is questionable, as I argued about it with reform opponents six years ago); it's another to leap to the conclusion that therefore caps are always a bad idea when one admittedly hasn't evaluated the relative costs and benefits.

It's always tempting to oversell incremental improvements in data collection as having far-reaching policy implications. I've been critical of this problem before, including with papers Svorny relies upon. In this case it results in a non sequitur. The bottom-line conclusions of Svorny's paper are not supported by the data or the analysis.

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Shirley Svorny

Health economists and others have said medical professional liability insurance premiums are not experience rated. This led observers to conclude the system did not penalize malfeasant physicians. In that case, there would be little to lose if awards were capped. My contribution has been to point out that not only are premiums experience rated, but liability insurers take other steps to reduce practice risk. This is an important observation in a discussion over the value of caps. It is also an important observation with respect to state licensing of medical professionals.

For years, I have argued that state licensing is used by medical professionals to limit entry and does little to protect consumers. I have argued that consumers are protected by private efforts to reduce liability and that is what led me to look more closely at how the medical professional liability insurance industry works. The information presented in my paper was drawn from conversations with insurance industry professionals and a comprehensive review of state insurance filings. Physicians denied coverage by admitted carriers must seek insurance from surplus lines carriers who specialize in underwriting "hard-to-place" physicians. Few companies have those skills. And few physicians end up in that market. But those who do pay significantly more for medical professional liability insurance than their same-specialty, same-location peers.

If, as Mr. Frank suggests, once one controls for a physician's specialty, previous claims experience does not predict future claims experience, then medical professional liability underwriters are wasting a great deal of time and money evaluating individual physician's claims histories and practice risk. In pointing out that the few bogus claims are rewarded, I did not mean to suggest it is the only cost associated with the current system, my point was that the level of error in the system will never be zero or even close to zero. What we know is that the level of error in awards based on claims is relatively low. Most meritless claims do not move forward.

Whether the costs of the system are greater than the benefits is not something we have a handle on. From an economic perspective, it only makes sense to reduce costs-as caps would-if benefits do not fall more than costs. Any list of the costs and benefits of the medical malpractice system should include the benefits to consumers associated with the oversight and risk management provided by medical professional liability insurance companies. Mr. Frank asserts "the legal system is poorly situated to make judgment calls about complex medical decisions." As I mentioned before, Farber and White's evaluation of the tort system suggests it is well-situated to make judgment calls.

Mr. Frank mentions that my point is not new; he has participated in previous discussions that have addressed the negative consequences caps might have on medical practice risk. However economists and health policy analysts must not have been invited because they consistently, mistakenly, express the view that physicians are sheltered from liability by malpractice premiums that are not experience rated. It is important to clear up this mistaken impression if we are to have a fruitful discussion over whether the legal system works to deter malfeasance.

Mr. Frank is convinced that the costs of the current system outweigh the benefits and has credited me with the view that they don't. Then he writes that the conclusions of my paper are not supported by the data and the analysis. He is giving me credit for conclusions I did not draw. I do not conclude that the benefits of the tort system outweigh the costs. My paper points to a benefit of medical malpractice liability that had been overlooked in the economics and health policy literature due to the mistaken view that medical professional liability insurance premiums have not been experience rated.

 

 

 

FEATURED DISCUSSION ARCHIVE:


Obamacare Decision: Reactions, July 2012
Law School Faculty Diversity, May-June 2012
Class Actions, May 2012
Constitutionality of Individual Mandate, March 2012
Human Rights and International Law, February-March 2012
The constitutionality of President Obama's recess appointments, January 2012
Do caps on medical malpractice damages hurt consumers?, December 2011
Trial Lawyers Inc.: State Attorneys General, October 2011
Wal-Mart v. Dukes, April 2011
Kagan Supreme Court nomination, May-June 2010
Election roundtable, November-December 2006
Who's the boss, September 2006
Medical judgement, July 2006
Lawyer Licensing, May 2006
Contingent claims, April 2006
Smoking guns, July 2004

Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.