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September 23, 2004

Some corrections

By Ted Frank

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.

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