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A US Chamber Institute for Legal Reform study by NERA finds (no surprise) that the US legal system is the most costly in the world, even when one accounts for the difference in social-insurance programs between American and Europe. Of interesting note: UK legal expenses are up 47% in the last three years, though still substantially cheaper than the US. More: Fisher @ Forbes; Sunday Times ($); related: Zywicki @ Volokh on auto safety.

I'd like to see the full report, because even the figure of an extra 1% of GDP going to excess legal expenses relative to Europe is likely an understatement. A 2011 edition of a similar report by NERA didn't include the expense of securities litigation, where much of the money goes to attorneys (and a disproportionate share of the proceeds goes to institutional investors at the expense of small shareholders). (Update: here it is, and, indeed, the 0.82 to 1.03% estimate is very definitely an underestimate.)

While the trial bar argues the expense of the liability system as a deterrent to make medicine and consumer products safer, I'm not aware of any evidence that Europe is less safe than the US. For example, though Germany has both an Autobahn without speed limits and a much higher percentage of mini cars like the "Smart," in 2005, their auto fatality rate was 7.8 deaths per billion km travelled versus 9.1 in the United States the same year. New Zealand has no medical-malpractice cause of action at all, and there is no evidence that patients there are being butchered as a result. And fear of liability and overcautious pharmaceutical regulation is likely costing lives at the margin.

A new study's abstract says that it finds that a "physician's years in practice and previous paid claims history had no effect on the odds" of a payout of more than a million dollars to a plaintiff—supporting my contention that, at the margin, the status quo medical malpractice system is largely random and does more to deter practice than malpractice. The authors don't seem to realize this implication of their finding, but only the abstract is available publicly. [JHQ via Torts Prof]

Related on POL: January 2005; April 2011.

One of the primary arguments for limitless medical malpractice liability is the claim that it is punishes bad doctors: when bad doctors keep getting sued for injuring patients, their insurers will drop them or raise their rates so high that they won't be able to practice any more. Between that and deterrence, the quality of medicine will improve. Reformers disagree: I take the position, for example, that medical malpractice litigation does such a poor job of distinguishing good doctors from bad doctors that the quality effects are negligible and that, at the margin of the status quo, the deterrence of malpractice is outweighed by the deterrence of practice. Lawyers are interested in extracting wealth from the deep pocket, and the current system allows them to do that for generic bad results with little correlation to the quality of the defendant's work. For example, nursing homes that improve from the lowest decile of performance to the highest decile of performance reduce their chances of being sued from 47% to 40%. The incentive of lawyers to go after bad doctors isn't much more than the incentive of lawyers to go after good doctors.

Into this debate, consider the Kermit Gosnell case, which I think has resonance beyond just the politics of abortion and media bias. Leave aside the undeniable horrors of "snipping" dozens or hundreds of babies born alive and then murdered on an operating table; the weirdness of the feet being preserved. Gosnell was butchering patients: treating them with unsterilized instruments (and spreading STDs in the process), anesthesia performed by untrained teenagers, causing infections and death. From the grand jury report:

One woman "was left lying in place for hours after Gosnell tore her cervix and colon while trying, unsuccessfully, to extract the fetus," the report states. Another patient, 19, "was held for several hours after Gosnell punctured her uterus. As a result of the delay, she fell into shock from blood loss, and had to undergo a hysterectomy." A third patient "went into convulsions during an abortion, fell off the procedure table, and hit her head on the floor. Gosnell wouldn't call an ambulance, and wouldn't let the woman's companion leave the building so that he could call an ambulance."

And it's not like Gosnell was practicing in a jurisdiction where he was shielded from liability. His cat-urine-soiled offices were in the judicial hellhole of Philadelphia, where the courts are as trial-lawyer-friendly as any in the nation when it comes to transferring wealth from doctors and patients to lawyers.

Yet what did the trumpeted malpractice lawyers and liability of Philadelphia do to stop Gosnell? Nothing. Elementary discovery in a case involving a single one of his injured patients would have uncovered abuses meriting bankrupting punitive damages in even a jurisdiction using a model ATRA medical malpractice liability statute, much less Pennsylvania. But despite this deep-pocket incentive, Gosnell wasn't caught until federal agents accidentally came across his nightmarish clinic in the course of a drug investigation.

I suggest that the case of Kermit Gosnell should cause people to reevaluate their assessment of the role malpractice liability plays in sussing out bad doctors and improving the quality of medicine. If Philadelphia's judicial hellhole couldn't stop Gosnell's medical hellhole, why shouldn't Pennsylvania adopt Texas-level reforms, reduce medical malpractice expense, and costlessly eliminate the transfer of wealth from middle-class patients to lawyers in the 1%?

That said, the Gosnell case has a message for civil justice reformers, too: the public policy of reducing the role of civil liability in disciplining doctors only makes sense if the public regulators are doing their job and shutting down the bad doctors. The Pennsylvania Department of Health didn't do its job here, despite multiple opportunities to do so. It seems Pennsylvania citizens get the worst of both worlds: a liability system that benefits lawyers at the expense of doctors and patients without any offsetting improvement in healthcare results, and a regulatory bureaucracy that refused to do its job despite multiple reports of abuses.

Among other insights, he notes that Canada's medical malpractice regime costs ten percent of ours, with the same level of performance. What does the other 90% get us other than a wealth transfer from doctors and patients to lawyers? [Kirkendall]

In the movie "Hot Coffee," Susan Saladoff complains that grievously injured medical malpractice victims who cannot recover their full measure of economic damages result in a subsidy from taxpayers (who end up picking up the bill) to defendants. One can question whether the defendants in the case she singled out were guilty of anything more than being blamed for a bad medical result, and one can complain that she conflates the issue of amorphous noneconomic damages with the particular potential injustice of capped economic damages, but she is right that caps for economic damages are a bad idea.

But it's not the case that trial lawyers really care so much about the impact on taxpayers. North Carolina law permits the state to recoup Medicaid expenses from the assets of patients helped, but has an exception for noneconomic damages recovered. So cases don't go to trial; instead the parties, with a nudge and a wink, carve the third-party taxpayer out of the recovery by characterizing the full settlement as non-economic damages.

To what extent can medical malpractice settlements evade the Medicaid clawbacks through the legal fiction that the settlement reflects solely pain & suffering damages? So asks the case of Delia v. E.M.A., argued earlier this week. [McClatchey]

The Obama administration has sided with trial lawyers over taxpayers, flipping what the prior federal position was. Counterintuitively, so did a brief for the Federation of Defense and Corporate Counsel. Game theory tells us why: the Medicaid clawback makes going to trial less valuable for plaintiffs, and creates settlement pressure to avoid the clawback, and defendants can split the benefit of freezing out taxpayers with the plaintiffs.

Texas filed a good brief for the petitioners.

Note that such elastic settlements are only possible in a jurisdiction with uncapped noneconomic damages.

At argument, the Supreme Court seemed skeptical of North Carolina's position, though that likely reflected the arbitrary particularities of the North Carolina statute, which irrebuttably defines the amount of any settlement—or jury verdict—attributable to medical expenses or noneconomic damages. On the other hand, the Court also expressed skepticism of the respondents' position that the state had to make an individualized assessment of every case.

(Related: why giving the state a share of punitive damages doesn't work; why ending deductibility for punitive damages is pernicious and POL).

Gregory Conko, a senior fellow at the Competitive Enterprise Institute, comments on the GlaxoSmithKline settlement where the pharmaceutical company agreed to pay a record $3 billion in fines to settle various criminal and civil charges associated with 10 of the company's drugs -- making this the largest such settlement in history.

Jarrett Dieterle
Legal Intern, Manhattan Institute's Center for Legal Policy

Recently the New Hampshire legislature voted to override the veto of Gov. John Lynch and enact an "early offer" system for medical malpractice cases. As Walter Olson describes, the law incentivizes "defendants to make offers early in the litigation process that cover plaintiff's economic losses such as medical bills and lost wages." The plaintiffs can then choose whether to accept the early offer from the defendant doctor or continue to litigate the case. According to Section XII of the statute, if the plaintiff ultimately does not prevail, a form of "loser pays" takes effect:

XII. A claimant who rejects an early offer and who does not prevail in an action for medical injury against the medical care provider by being awarded at least 125 percent of the early offer amount, shall be responsible for paying the medical care provider's reasonable attorney's fees and costs incurred in the proceedings under this chapter.

In addition to being advantageous for the doctors as defendants, "early offer" also can benefit the claimants in certain situations:

Early offers allows, but does not force, a claimant to bypass the tort system. Tort law has virtues, but among them are not certainty and swiftness. Because of an understandable focus on individual justice, the tort system can be very uncertain and slow, with significant transaction costs. There are many claimants who would prefer to have their claims resolved along insurance principles--with more certain payment for economic loss, taking care of the their urgent needs. I have sat at the hospital bed of a catastrophically injured loved one. After his health, my main concern was that he not be bankrupted by the enormous costs of life-saving care.

New Hampshire is the first state in the country to enact an "early offer" system. Given its benefits for doctors and patients, maybe more states will choose to follow the Granite State's lead.

Black/Hyman/Silver have a new draft paper, "Does Tort Reform Affect Physician Supply? Evidence from Texas," (via Robinette) that substantially undermines the empirical case for the conventional wisdom that Texas's 2003 reforms against medical malpractice lawsuits attracted more doctors to Texas. The result is highly counterintuitive: after all, even the authors acknowledge that the reforms dramatically decreased malpractice expenses for doctors. Are we to conclude that doctors do not respond to economic incentives?

Alas, the authors do not suggest any explanation for the phenomenon they describe. Possibilities:

• The supply of doctors is inelastic relative to after-expense income. This is a testable hypothesis, and would have dramatic implications for "bending the cost curve" of health-care expenditures if true.
• Employers of doctors offset the decrease in medical-malpractice expenditures by decreasing wages paid to doctors. This seems somewhat implausible, as many doctors are independent, and the ones that aren't probably aren't paying for their own malpractice insurance. But it is also a testable hypothesis. Too, if the health-care market in Texas responded to such a wage decrease by reducing costs to patients (or, at least, reducing costs to patients relative to the nationwide trend of rising costs to patients), that is also worth studying, and would be a benefit that may refute the overstated conclusion of the authors that "tort reform is a small idea, when it comes to the larger and linked questions of health care access and affordability."
• The quantity of doctors did not increase, but the doctors responded to the incentives by changing the mix and quality of services provided in any given year: more OB/GYNs willing to deliver babies rather than restricting themselves to less risky work; more doctors willing to work in emergency rooms; doctors spending more time seeing patients and less time in medical-malpractice-related activities like defending themselves in lawsuits, cover-your-ass documentation, and (for better or worse) defensive medicine. If the average practicing doctor is spending more hours with patients post-tort-reform than pre-tort-reform, doctor supply is increasing, even if the raw numbers aren't. I am not aware of any evidence for this, but economic theory would predict this result. It's not clear whether the data exists to test this hypothesis, but as in the parable of the drunk looking for his lost keys under the streetlamp, one should avoid drawing conclusions that contradict economic theory just because it is too difficult to test an alternative hypothesis consistent with economic theory. Too, if defensive medicine practices changed, as one predicts they would, have health outcomes changed for better or worse? (Professor Silver has argued elsewhere his concern that Texas doctors would take less care post-reform.) Again, this is difficult to test, especially since the adverse consequences of many defensive-medicine decisions, such as excessive CAT scans, won't be known until the additional cancers show up decades later. But it is both a potential benefit and a potential cost of tort reform, as we don't know to what extent doctors are properly weighing benefits and costs (including opportunity costs of more intensive treatment of a particular patient) at the margin. Kessler's study, backed to a lesser extent by the CBO, certainly suggests defensive medicine is wasted money at the margin in the state of the world without damages caps, but defensive medicine is surely different today than in the 1980s.
• For many doctors with low-risk practices, malpractice liability is not a large factor in their practice decision. But the malpractice liability crisis most heavily hit high-risk practices, like neurosurgery or OB/GYN or emergency-room care. Did Texas tort reform materially affect the supply of doctors in high-risk specialties, while the effect on low-risk specialties was overwhelmed by noise? This should be a testable hypothesis, but the data is poor because of a change in the way statistics were collected. The authors try to get around this by comparing 1997-2000 growth to 2008-2010 growth, but there's not necessarily a reason that one would predict a post-tort reform world to have a different post-equilibrium effect than a pre-tort reform world. One cannot rule out the hypothesis that doctors overreacted to the new incentive when tort reform was first imposed and that depressed new demand in later years. Of course, one cannot rule out the null hypothesis that a dramatic decrease in malpractice-insurance rates caused by tort reform did not increase the supply of high-risk doctors, though, again, one wishes for an alternative explanation for why doctors are not responding to economic incentives. (Note, too, that the authors' decision of excluding 2001-07 from the data has dramatic effects on the data. It's unclear to me why a reporting change in 2001 that would artificially increase the 2001-02 numbers relative to the 1999-2000 numbers should have an effect on the 2003-07 numbers, especially given the 2000-2003 declines that are being excluded.)

Can anyone think of other alternative hypotheses in the comments?

I remain skeptical that a wealth transfer from lawyers to doctors and patients didn't have positive externalities, but I, for one, am going to stop claiming that Texas tort reform increased doctor supply without better data demonstrating that. More study is needed to explain Black/Hyman/Silver's counterintuitive result, and partisans on both sides need to be more conservative with their policy claims. Earlier.

H.R. 5 passes the House on a largely partisan vote. Since the bill will die in the Senate, and would not have survived an inevitable Obama veto, it's hard to imagine why people have been so worked up about it. [Overlawyered; House Rules Committee]

Case in point: Patricia Moore of the Civ Procedure Prof Blog and St. Thomas Law School, not only has to use scare quotes in discussing tort reform, but makes the astonishing claim "And if you keep repeating over and over that damages caps lower malpractice premiums, maybe it will someday be true despite all empirical evidence to the contrary." Moore is entitled to her own opinion, but not to her own facts. It's unquestionable that damages caps reduce malpractice premiums. It's beyond silly to claim otherwise: If caps don't reduce the amount insurers pay out for malpractice, why does the litigation lobby spend so much time and money opposing them?

I've questioned the utility of federalizing medical malpractice: if Republicans want to claim that PPACA is unconstitutional, it makes sense to leave medical malpractice, a local market and a local issue unlike the national problem of product liability, to the states. If Pennsylvania wants to drive all of its doctors to Texas because it would rather make its lawyers rich, that's what competitive federalism is all about. (In contrast, if West Virginia wants to expropriate the gains of interstate commerce through product liability laws that punish out-of-state defendants, Congress and the courts should be stepping in: such state abuse is exactly why we don't have an Articles of Confederation any more.) Rep. Broun proposed an unsuccessful amendment to the bill that would have adopted one of my suggestions: reduce federal expenditures by creating caps on medical procedures reimbursed with federal money, limiting the bill that way.

Reversing the mistake of Wyeth v. Levine would have far more beneficial effects on medical expenses and the economy, and be more consistent with federalism, even correcting a federalism mistake of the Supreme Court. But that probably wouldn't pass the Senate, either.

The trial-lawyer funded "Center for Constitutional Litigation" challenged the power of the Texas legislature to create malpractice limits to prevent runaway juries under the Seventh, Fifth, Fourteenth, and First Amendments. No dice, said a magistrate judge in Marshall, Texas. [Legal Newsline; TLR]