In his State of the Union speech last month, President Barack Obama appeared to offer an olive branch to congressional Republicans and those who favor medical liability reform when he said, "I am willing to look at other ideas to bring down costs, including one that Republicans suggested last year – medical malpractice reform to rein in frivolous lawsuits."
One has to commend the president for addressing the issue, but there are some problems with his statement. To find out why, just look at the Republicans' principal medical liability legislation, H.R.5, which has been reintroduced this year in the House by Rep. Phil Gingrey, R-Ga. It does not include sanctions against frivolous lawsuits, which often take the form of court-imposed fines or penalties. And with good reason. As every competent medical malpractice plaintiffs' lawyer knows (and defense lawyers know, too), it is very rare for plaintiffs' lawyers to bring frivolous medical malpractice suits. The fact is most plaintiffs' lawyers turn down most medical malpractice suits, for which preparation is cost- and labor-intensive, because they are not viable. (We do need stronger sanctions against frivolous claims, but that is an across-the-board issue. The president should support a separate piece of pending legislation, the Lawsuit Abuse Reduction Act, which accomplishes that important goal.)
And there is nothing to suggest in theory or fact that sanctions against medical malpractice frivolous lawsuits will significantly bring down the cost of medical malpractice insurance.
What Will Work
H.R.5 contains reforms that will work and reduce insurance costs. Perhaps the most important is a limit of $250,000 on pain and suffering -- also known as non-economic -- damages. This "cap" comes directly from a 1978 California law, which was signed by Democratic Gov. Jerry Brown, who was then serving his first term in the office. In spite of numerous lobbying attempts by trial lawyers to repeal or raise the amount, the Democratic-dominated California legislature has never done so. That's because, while other states have seen medical malpractice insurance costs skyrocket, California's premiums have been relatively stable. The California legislators know "when something is not broken, do not fix it."
Among the other reforms included in H.R. 5 that reflect the California law are its sliding scale cap on plaintiff's attorney fees, its provision for periodic payment of future damages and its three-year-from-incident/one-year-from discovery statute of limitations.
But one need not only look to California as proof that the cap on pain and suffering is effective. In the past few years, Mississippi and Texas also have enacted medical liability laws that limit non-economic damages. As a result, additional malpractice insurers have entered the market in both states, and insurance costs have been stabilized. As has been the case in California for more than 40 years, there have been no significant efforts to repeal these caps on damages.
Critics of caps say no clear direct evidence supports the idea that the average person pays less for medical costs when such reforms are enacted. But, certainly as the Congressional Budget Office has shown, caps bring about real savings to taxpayers and the health care system. CBO's latest estimate of Republican-style bills, with caps, sets the number at $56 billion over ten years.
While $56 billion may seem a drop in the bucket, as has been echoed by some trial-lawyer cap opponents, it is nothing to sneeze at. As the late Sen. Everett Dirksen is purported to have said, "a billion here and a billion there, it soon adds up to real money."
There are also controversial questions related to "defensive medicine" -- whether it is the direct result of physicians' liability fears and whether, in practice, it drives up health care costs.
While doctors are placed in a very difficult position to admit this, extreme and uncertain liability exposure does lead to the practice of defensive medicine. When doctors have to testify about this point, they can be put in a trap. A trial lawyer-leaning member of Congress may ask, "Doctor, did you perform tests that were unnecessary?" What is the doctor to say? "Yes, I did, I do it all the time." But, knowledgeable people, and perhaps every reader of this column, know that defensive medicine does occur. A doctor does not want to take a risk by not providing that one extra test that might reveal a problem. The CBO did account for defensive medicine in its $56 billion estimate.
The Key Elements Of Meaningful Reform
If Congress moves forward on the issue, there are key elements that must be included in any meaningful attempt at reform.
First, any federal malpractice bill should be labeled "medical liability." Its coverage needs to be broader than protection for doctors. If the legislation is not carefully drafted and the focus is solely on liability of doctors, then dollars saved can simply shift to another defendant who is brought into a lawsuit, but is not protected by the bill. That is the way that "deep pocket" tort suits work. If a doctor's pain and suffering damages are capped, inventive plaintiffs' lawyers will find a way to apportion at least some blame, however remote, on some other defendant -- for example, a hospital or a pharmaceutical company.
If the doctors are capped at $250,000 for pain and suffering, a jury award above that amount (jurors are not told about the cap, it is applied by the judge) could be thrust, in whole or in part, onto a marginal defendant. This shift is the result of "joint and several" liability rules that in some states can hold a defendant totally responsible for all damages a jury awards above the cap even if the jury finds it only two, three or five percent responsible for an alleged harm. Fortunately, H.R.5 is designed to prevent such unfair results. It can be done by eliminating "joint and several" liability or providing protections that are included in the legislation only to any party that is named in the lawsuit against a doctor.
A second key consideration has to do with federalism, and the interaction of federal and state medical liability reforms. The huge cost to the health care system for excessive medical liability, $56 billion over 10 years, provides, in itself, a reason for federal action. Nevertheless, like H.R.5, any federal medical liability legislation should be limited in its scope and directed at ways to save real money.
Bills also must be crafted carefully to interact with state law. For example, if the state of Mississippi wants to have a lower cap than $250,000, or wishes to have other medical liability reforms, such as requiring that a plaintiff's lawyer produce a medical certificate of merit before his claim is filed, the state should be free to do so. This is not only a matter of careful drafting, but also of sound public policy.
Overall, the president should embrace the spirit of his promise that he will support effective federal medical liability reform. While H.R.5 is likely to easily pass the House, the president's power and prestige will be needed to have any meaningful medical liability reform bill pass the Senate, where the Democratic majority has historically opposed the idea of non-economic damage caps. But the more than 40 years of experience with the California law proves the approach is effective in achieving the goal of reducing health care costs while preserving sufficient deterrence in the legal system.
Victor E. Schwartz is chairman of the public policy group in the Washington, D.C. office of the law firm Shook Hardy & Bacon L.L.P., and general counsel to the American Tort Reform Association. He also is a co-author of the widely used torts casebook, Prosser, Wade and Schwartz's Torts.
The views expressed in this article are those of Mr. Schwartz and do not represent the official views of ATRA or any other client of Shook Hardy & Bacon.