Kimberley Hoff 16 Dec 2012 PAR 116 Tort reform paper Our society has spent the last

4 years in a heated debate over how best to provide near-universal access to health care and how best to distribute its costs among members of the population1. While the 2010 Patient Protection and Affordable Care Act contained many new or reformed approaches to health care economics, it barely dealt with a set of frequently-cited culprits for rising medical costs: large awards for medical negligence torts, the malpractice insurance doctors must carry to protect themselves, and the medically unnecessary tests and procedures doctors perform out of fear of lawsuits (called defensive medicine, which may make up as much as 10% of current annual health care costs or $210 billion a year nationally1). Reform of personal injury torts has been held out as a way to reduce the costs of medical malpractice suits, which are ultimately borne by the consumer through higher insurance premiums. Health care consumers are implicitly asked to accept restrictions on their rights to legal redress in exchange for lowered health care and insurance costs2. In this paper, I will examine the argument for tort reform in general, the implementation and effects of malpractice reform in particular, and whether or not reform has achieved its stated objectives. Torts are civil wrongs, such as trespass, assault, or negligence, for which the victim receives a remedy in the form of pecuniary damages3. Although the origins of this form of lawsuit date back to the Anglo-Saxon practice of weregeldmonetary compensation for a death or injury in order to resolve interpersonal disputes bloodlesslytort law assumed a new kind of importance in the 20th century, as no-fault strict liability torts could be used to hold manufacturers responsible for injuries or other damages caused by defective consumer products. Reforms to tort law were usually initiated by progressives such as William Prosser and generally made it easier for plaintiffs to establish a claim. In the 1960s especially, tort litigation was seen as a force for social change, penalizing manufacturers concerned with their bottom line over the safety of their customers and, in a much broader sense, advocating for a more equitable and considerate society through deterrence of antisocial behavior4. By the 1980s, however, the pendulum of public opinion had begun to swing back in favor of defendants. In 1986, the Colorado insurance industry and business interest groups claimed that a near doubling of medical malpractice and general liability insurance rates and the increasing hesitance of insurers to write policies for certain kinds of risks presented a serious threat to economic growth5. Further, they asserted that this increase in premium cost was directly due to the growing number and size of personal injury claims and damages, which needed to be reined in to prevent more hikes in the future. Business interests were not the only ones calling for change at the time. The public had begun to resent the exploding number and size of tort claims swamping state and federal courts. In the landmark Colorado Supreme Court case Palmer v. A. H. Robins Co., Inc6., some of the justices expressed concerns in their written dissent at the very large punitive damage award (10 times the actual damages) and suggested that legislative controls might be needed to prevent future awards from spiraling out of
1 2

Garber, Kent. Democrats Elephant in the Room. U.S. News Weekly, Aug. 1, 2009. www.usnews.com. Morrisey, Michael A., et al. Medical Malpractice Reform and Employer-Sponsored Insurance Premiums. Health Services Research, Dec. 2008. 2124-2142. 3 th Edwards, Linda L., et al. Tort Law for Legal Assistants, 4 ed. Delmar: Clifton Park, NY, 2009. 4, 9, 12. 4 Born, Patricia and W. Kip Viscusi. The Distribution of the Insurance Market Effects of Tort Liability Reforms. Brookings Papers on Economic Activity: Microeconomics, 1998. 55-105. 5 Salmon, John G. Fifteen Years of Colorado Legislative Tort Reform: Where Are We Now? The Colorado Lawyer, Feb. 2001. 5. 6 684 P.2d 187 (Colo. 1984).

control. It is, however, also worth noting that retrospective analysis has suggested that the mid-1980s premium hike may have been caused by a decrease in investment interest rates that left insurance companies undercapitalized for the risk levels in their policy portfolios5. Excessive tort costs may simply have been a more politically acceptable explanation of the companies shortcomings. Whatever the cause, rising costs and public outcry prompted swift and decisive action on the part of the Colorado legislature, which passed a comprehensive reform bill by the end of the year, as did about half the other US states over a 3-year period47. Colorado s drastic tort reform regime abolished joint and several liability, limited punitive damages to no more than the actual damages, and imposed a $250,000 cap on all noneconomic damages except disfigurement and physical impairment (due to an unintentional loophole that legislators have never closed)8. Colorados tort reform measures also included reduced statutes of limitations and repose, cuts to workers compensation rates, and special immunities for many government agencies or private industries (such as skiing and llama breeding)5. Punitive damages could only be imposed for wanton and willful behavior, not for strict liability. In a bizarre, almost Orwellian quirk of legal procedure, a jury hearing a personal injury suit was not to be informed of the caps on different types of damages before deliberation; the judge would be responsible for taking their award and applying the caps after the verdict was rendered. This produced the unfortunate implication that the jury could not be trusted to correctly adjudicate compensation, which rather makes one question why they were trusted to deliver a verdict at all. Medical malpractice torts were given specific attention in the later Health Care Availability Act9, which closed the impairment and disfigurement loophole for medical torts only 8 and limited total damagespast, present, and future to $1 million present value5. Such sweeping changes to tort law should have, by the logic of the reformers, produced clear evidence of the intended benefits. How have malpractice suits and premiums fared in the years since? Well, selling insurance in the state has remained profitable. In 1999, the 20 largest insurance companies in Colorado collected $900 million more in premiums than they paid out in claims5. The biggest benefits were not realized by the best-run firms but rather by those with the highest loss ratios; reform in essence reduced the cost of poor underwriting practices4. Tort reform has helped ease doctor shortages in some localities and specialties where malpractice insurance costs had previously been outright prohibitive but it has not stemmed the dramatic rise of overall health care costs1. In obstetrics, a notoriously litigious specialty with huge premiums, malpractice insurance costs (and doctor fear) have been found to correlate directly with the number of unnecessary C-sections performed10. Another study found that abolishment of joint and several liability (reducing the burden on the deep pocket defendant) results in more improvement in obstetric complication rates than other reforms such as damage caps11. Other, less emotionally charged, medical specialties showed some reduction in unnecessary care with malpractice reform but that did not translate to significant improvement of patient outcomes10. Damage caps lowered malpractice insurance rates somewhat in the immediate aftermath of tort reform but rates are once again increasing faster than inflation4. Between 1984 and 2001, liability insurance rates rose at approximately the same pace in states that never passed

Boer, Cindy C. and Charles Q. Socha. The Impact of Tort Reform on Product. The Colorado Lawyer, Nov. 2001. 91. 8 Conklin, John L. Physical Impairment and Disfigurement Under the Health Care Availability Act. The Colorado Lawyer, May 1999. 65. 9 CRS 13-64-101 et seq. 10 Yang, Y. Tony, et al. Relationship Between Malpractice Litigation Pressure and Rates of Cesarean Section and Vaginal Birth After Cesarean Section. Medical Care, Feb. 2009. 234-242. 11 Currie, Janet and W. Bentley McCloud. First Do No Harm?: Tort Reform and Birth Outcomes. NBER Working Papers 12478. www.nber.org/papers/w12478.

significant tort reform as in states with extensive tort reform12. Especially steep increases in 2002 malpractice premiums lead to another round of tort reform legislation passed in 2003, yet a 2006 survey of small business owners found that they still identified rising malpractice costs as the biggest contributor to rising employee health plan premiums2. Limits on noneconomic damages were found to have no impact on consumer health insurance premiums. And it is the health care consumer who ultimately bears the cost of tort awards, malpractice insurance premiums, and defensive medicine procedures: physician income shows little to no impact from premium hikes; costs are wholly passed on to the consumer in co-pays and health plan premiums, defeating the larger purpose of malpractice torts: promoting the best, most efficient care possible. What is more, the tort law malpractice system also fails its narrow purpose: providing equitable compensation for injuries due to negligence. Only 1 in 15 iatrogenic injuries is compensated, and 5 out of 6 compensated cases have no evidence of negligence13. The victims level of economic loss is a much more consistent predictor of the likelihood and size of a jury award than the defendants level of fault. Given the track record laid out in the last paragraph, I feel that it is clear that tort reform has failed to deliver its promised benefits, resulting in a loss of personal rights for plaintiffs without a compensating improvement in health care costs and outcomes. Defensive medicine practices have resisted efforts to legislate away their necessity, as in an employer-sponsored insurance model neither patients nor doctors directly bear the marginal costs of unnecessary tests and procedures13. Everyone is still caught in the same game of limbo and the same failings haunt the system. Some argue that the negligence-based system so completely fails to deter poor care that the only politically feasible improvements would come from streamlining the system to process claims as quickly as possible and standardizing criteria and amounts for noneconomic damages, so that outcomes are swifter, cheaper, and more predictable14. It is, in my opinion, even past the point where those improvements would achieve the desired results. It is time to consider drastic action to fix a health care/insurance/tort complex that is broken to its core. Alternatives to traditional malpractice torts exist both in theory and in practice in other countries. These include guideline-based systems where doctors who follow written standard of care manuals have at least partial immunity from litigation, enterprise liability where hospitals or health plans accept part of the liability for any malpractice committed by their employees, and binding arbitration agreements which keep cases likely to settle out of the courts13. Another suggestion to reduce total damages and court costs is binding early offers, where a defendant offers a plaintiff periodic payments for economic damages as they accrue, in return for releasing any claims for noneconomic damages15. I personally favor administrative compensation, a radical suggestion that would remove medical malpractice from the realm of tort entirely in favor of an administrative law proceeding with expert judges or panels13. Expert adjudicators would make compensation more available to victims who cannot afford court costs under the current system and do a better job of identifying negligence and establishing a consistent scale for noneconomic damages than general court judges and randomly chosen juries. Administrative compensation proposals are often combined with experience-rated malpractice insurance to make sure that problem doctors are identified and dealt
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Citizens for Corporate Accountability and Individual Rights. Premium Deceit: The Failure of Tort Reform to Cut Insurance Prices July 1999. www.ccair.org/premium deceit/premiumdeceit.html 13 Kessler, Daniel P. Evaluating the Medical Malpractice System and Options for Reform. Journal of Economic Perspectives, Spring 2011. 93-110. 14 Bovbjerg, Randall R. Commentary: Malpractice Reform in Policy Perspective. The Milbank Quarterly, 85(2) 2007. 297-305. 15 OConnell, Jeffrey. Commentary: Binding Early Offers Versus Caps for Medical Malpractice Claims? The Milbank Quarterly, 85(2) 2007. 287-296.

with13. Experience rating means adjusting rates based on a doctors individual track record, not just their specialty and location16. In some specialties, 87% of claims may come from 6% of practitioners, and their past performance is often a good predictor of their future performance. Group experience rating or peer-review to weed out spurious claims could give doctors some benefit of the doubt while still emphasizing accountability. In conclusion, tort reform was a reaction in the 1980s against the rising prevalence and cost of personal injury litigation such as medical malpractice suits. This was perceived to be the main cause of an unsustainable jump in liability and malpractice insurance premiums (and ultimately overall health care costs). Colorado and other states enacted strict caps on damages, abolished joint and several liability, and took other steps to limit the wider economic impact of tort awards. These measures were somewhat effective in lowering rates for malpractice insurance and decreasing the use of defensive medicine, but ultimately they failed to make compensation more equitable or slow the rise in overall health care costs. In my opinion, the tort system is not equipped to deal with the complexities of modern medical malpractice and the best solution would be to create an administrative law process specifically to handle claims, with malpractice insurance switching to an experience rating system that shifts premium costs to the most negligent doctors.

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Sloan, Frank A. Experience Rating: Does It Make Sense for Medical Malpractice Insurance? The American Economic Review, May 1990. 128-133.