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Vinny Sidhu
Legal Intern, Manhattan Institute's Center for Legal Policy

The purpose of allowing the people to petition their government for a redress of grievances is to ensure that those who have been wronged have the means to obtain compensation for the harm caused. Within this context, the debate over what constitutes "fair" compensation generally turns on two general considerations; namely, 1) whether the plaintiffs who seek a redress have legitimate claims and 2) if so, whether their accrued compensation is justified on the facts and circumstances of the case. Increasingly, the legislative and judicial systems have experienced burgeoning problems in dealing with the legitimacy of both factors.

To this end, Mark Behrens, Cary Silverman, and Christopher Appel of the legal firm Shook, Hardy, & Bacon L.L.P. have authored two important pieces. In terms of whether plaintiffs have legitimate claims, Behrens and Appel write in an op-ed for the National Law Journal that medical monitoring claims have increasingly been utilized by plaintiffs to try and obtain redress without the requisite injury-in-fact necessary to have standing. They laud courts that have attempted to restrict payments for injuries that may or may not occur, often at the expense of those truly harmed:

Suppose you have been exposed to a product that may increase your risk of a disease. You presently have no injury, but you are concerned that you could develop a disease in the future. Should the person who created the situation or made the product associated with the risk pay for you to obtain periodic medical testing?

Courts have come to different conclusions. Most courts over the past 20 years have said no to medical monitoring claims. Since 2000, these include the Supreme Courts of Alabama, Kentucky, Michigan, Mississippi, Nevada and Oregon. A few courts, however, recently have allowed medical monitoring claims in some situations, including the highest courts of Missouri in 2007, Massachusetts in 2009 and Maryland last year.

To the surprise of many in the plaintiffs' bar, a majority of New York's highest court recently joined the list of courts that have said no to medical monitoring for asymptomatic claimants. The New York Court of Appeals said that awarding medical monitoring to those individuals can threaten recoveries for the truly sick and lead to administrative nightmares and public policy judgments that are better left to the legislature.

The New York Court of Appeals reached the right conclusion. For over 200 years, one of the fundamental principles of tort law has been that a plaintiff cannot recover without proof of a physical injury. This bright-line rule may seem harsh in some cases, but it is the best filter courts have developed to prevent a flood of claims, provide faster access to courts for those with reliable and serious claims, and ensure that the sick will not have to compete with the nonsick for compensation.

As to the legitimacy of accrued compensation, Behrens, Silverman, and Appel write in the Wake Forest Law Review that courts are misrepresenting the ratio of actual or potential damage to punitive damages by including extra-compensatory damages that skew the ratio downwards, ostensibly making it seem valid:

Whether extracompensatory damages are considered in the ratio calculation has constitutional and practical significance. For example, if a jury awards a modest $50,000 in actual damages but $1 million in punitive damages, the resulting 20:1 ratio would far exceed the presumptive single-digit ratio limit expressed by the U.S. Supreme Court. But, if the court adds an additional $200,000 in attorney fees to the compensatory damages denominator, the double-digit ratio drops to 4:1 and is less constitutionally suspicious. Inclusion of prejudgment interest, which is set at statutory rates in some states that far exceed inflation, can have an even more significant effect on the constitutional calculus. For example, an Oklahoma appellate court upheld a $53.6 million punitive damage award where actual damages were $750,000; the award included $12.5 million in prejudgment interest to reach a 4:1 ratio. Without prejudgment interest, the 70:1 ratio between the punitive and actual harm damages should have led to a different result.

They theorize that the true ratios (minus the extra-compensatory damages) may be a presumptive violation of due process. If we accept these issues as inherently dangerous to the health of the judicial system, then there needs to be action taken in terms of mitigating the potential damage to defendants. If no action is taken, the chances of truly-deserving plaintiffs receiving compensation goes down and the administrative costs on the court and defendants go up. If defendants are then unable to cover the cost of legitimate claims, the result is no redress for the plaintiff and significant financial harm or bankruptcy for the defendant. It becomes self-evident, then, that if the scales of justice tip increasingly in favor of one party, both parties ultimately suffer.

Post written by Mark Behrens, partner at Shook, Hardy & Bacon L.L.P. and co-chair of SHB's Public Policy Group

The New York Court of Appeals, the state's highest court, today rejected an equitable medical monitoring claim brought by longtime heavy smokers who have not been diagnosed with a smoking-related disease. The court said that medical monitoring is only available after a physical injury has been proven. The court explained that the "requirement that a plaintiff sustain physical harm before being able to recover in tort is a fundamental principle of our state's tort system" and that this physical injury requirement is important because "it defines the class of persons who actually possess a cause of action, provides a basis for the fact-finder to determine whether a litigant actually possesses a claim, and protects court dockets from being clogged with frivolous and unfounded claims."

The court also stated it "undoubtedly has the authority to recognize a new tort cause of action, but this authority must be exercised responsibly...." Echoing arguments previously articulated by SHB - and citing a Missouri Law Review article by Victor Schwartz and Leah Lorber - the court summarized some of the policy problems that could occur from creating a new, full-blown tort cause of action. For instance, the court acknowledged that countless plaintiffs could come forward to recover monitoring costs, "effectively flooding the courts while concomitantly depleting the tortfeasor's resources for those who have actually sustained damage." "Moreover," the court added, "it is speculative at best, whether asymptomatic plaintiffs will ever contract a disease; allowing them to recover medical monitoring costs without first establishing physical injury would lead to the inequitable diversion of money away from those who have actually sustained an injury as a result of the exposure." The court also noted that, from a practical standpoint, "it cannot be overlooked that there is no framework concerning how such a medical monitoring program would be implemented and administered." Again citing the article by Victor & Leah, the court concluded, "The Legislation is plainly in the better position to study the impact and consequences of creating such a cause of action, including the costs of implementation and the burden on the courts in adjudicating such claims."

On November 22, 2013, the Food and Drug Administration flexed its regulatory muscle by sending a warning letter to a genetic-testing company that goes under the stylish name of 23andme. The object of FDA scorn was a diagnostic kit that the tech company, backed by among others Google and Johnson & Johnson, sold to customers for $99. The kit contained an all-purpose saliva-based test that could give customers information about some 240 genetic traits, which relate to a wide range of genetic traits and disease conditions. The FDA warning letter chastised 23andme in no uncertain terms for being noncooperative and nonresponsive over a five-year period in supplying information that the FDA wanted to evaluate its product as a Type III device under the Medical Devices Act.

Legal Regulation of 23andme There is no doubt that the FDA is on solid legal ground. This case is not like the processes involved in Regenerative Sciences, LLC v. United States, where the FDA asserted that physicians' use of certain stem-cell procedures for joint disease involved the use of a drug that required FDA approval before it could be approved for use. In an earlier essay for the Manhattan Institute, I argued that this classification was in fact both legally incorrect and socially mischievous. In this case, the legal arguments are not available to 23andme because the current definition of "medical devices" covers not only those devices intended for use on the human body, but also those used for the diagnosis of disease. The Type III classification means that this device has to receive premarket approval from the FDA, which in turn requires that it be shown to be safe and effective for its intended use. Getting approval under this standard is arduous business, because any such approval must be for each of the tests separately. 240 tests thus require that number of approvals. The costs are prohibitive, and the delay enormous.

The FDA Warning Letter is significant both for what it says and for what it does not say. On the former, it details all the various steps that the FDA has taken in order to help shepherd 23andme through the FDA's processes, including the types of warning that the products should contain, and the various modifications that could be introduced in order to mitigate the risks of its use. It then notes that 23andme has done little to take advantage of the assistance offered to it. Indeed, worse, it has simply gone about its business selling the kits, without so much as a bow in the direction of the FDA.

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.

Epstein on providing for the poor
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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.


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