Medical liability reform: Evidence for legislative and alternative approaches

Medical liability reform remains a point of contentious debate in the U.S. A growing base of literature shows that the current system for litigating medical malpractice is inconsistent, wasteful, and damaging to physicians and patients. Most patients who sustain injuries due to negligent care never sue, and only one in six who do sue ever receive compensation.1,2 Conversely, nearly 40 percent of medical malpractice claims lack evidence of medical error or patient injury. Not easily dismissed, these non-meritorious cases account for 16 percent of medical liability costs. Furthermore, claims that are litigated have excessive administrative overhead. For every dollar spent on compensation to the injured patient, 54 cents are spent on lawyers, experts, and courts; yet despite the resources that are being poured into the system, patients must wait an average of five years after injury to achieve a resolution.2

The cost of this inefficient system ultimately falls to health care providers and their patients. Premiums for liability insurance have been skyrocketing in recent years. In 2006, 21 states were declared as being in a liability insurance “crisis,” with premiums increasing by as much as 80 percent annually.3 Both affordability and availability have been compromised in these states as liability insurers abandon the market and the premiums charged by those who remain dramatically increase.4 The increasing severity and frequency of awards have contributed to rising premiums.5 The national average jury award nearly doubled, increasing to $6.2 million in 2002 from $3.9 million in 2001, largely due to noneconomic damages, which have no maximum in many states.6

The burden of increasing litigation pressure does not stop at the physician’s pocketbook; it negatively affects the care physicians provide to patients. A study examining quality of care in Pennsylvania as it entered a liability insurance crisis suggests that increased liability pressure reduces physician satisfaction and weakens the patient-physician relationship.7 Whereas the malpractice system may discourage negligent or harmful care, it may go too far, altering the practice of physicians and provoking the practice of “defensive” medicine.

Defensive medicine

Table 1. Effects of traditional malpractice liability reforms12

Defensive medicine can be positive or negative. Positive defensive medicine occurs when physicians order a test, study, or procedure that isn’t indicated or cost-effective but may protect them from litigation. One survey found that 93 percent of specialists believe that they altered their clinical practice due to malpractice concerns, and 43 percent ordered clinically unnecessary imaging to protect themselves from lawsuits.8 Negative defensive medicine occurs when physicians abstain from providing necessary care in order to mitigate the risk of litigation, or when they leave states with higher litigation pressures or exit the profession altogether.9 A total of 42 percent of surveyed physicians had restricted their practice in some way to reduce their exposure to litigation.8 The cost of this defensive medicine has been estimated to be 2.4 percent of health care spending or $56 billion per year.10 Despite President Obama’s call to “scale back the excessive defensive medicine that reinforces our current system,” the Affordable Care Act does not explicitly address medical liability reform.11 Efforts to pass national tort reform legislation have long been stymied. Some states, including California as early as 1975, have implemented more progressive approaches, but success at the state level has been inconsistent.  In addition to the political contest surrounding medical liability reform, there is much debate about what policies would have the most beneficial effects. So far, the evaluations of traditional reforms have primarily focused more on measures of the liability system than on the downstream effects on patient care. Liability-related metrics include claims frequency; indemnity costs (amounts paid in verdicts or settlements); overhead costs; and the costs of malpractice insurance. Care-related metrics include the amount of defensive medicine, supply of physicians in an area, and patient outcomes.12 (See Table 1,  for a list of traditional legislative reforms and a summary of the evidence related to each approach.)

 

State legislation

Until the 1970s, public policies on medical liability were primarily determined by the state court system as part of common law, but as the cost of malpractice insurance rose, health care professionals began bringing the issue to the attention of state legislators.13 The types of reform passed in the states have varied, but legislation placing caps on damages has been gaining popularity. One of the earliest state reform efforts, the 1975 Medical Injury Compensation Reform Act (MICRA) of California, was established after Gov. Jerry Brown (D) called a special session to address the medical liability crisis in the state. Bipartisan California legislators enacted MICRA, which included a $250,000 cap on noneconomic damages, limits on attorney contingency fees, a statute of limitations, and a provision for periodic payments for awards. Since MICRA was enacted, malpractice premiums in California have increased at a third of the national rate, and it has reduced health care spending, saving Californians $6 billion dollars annually.14

Currently, 35 states have established some sort of cap on damages. Amounts of the caps vary between $250,000 in California and $1.75 million in Nebraska. A total of 16 state courts have upheld caps, while 11 have overturned the limits on damage awards, maintaining that they are unconstitutional. For instance, the Illinois Supreme Court ruled that caps on noneconomic damages were unconstitutional in 2010. As a result, liability costs in Illinois are expected to jump by 18 percent this year.

The constitutions of four states, Arizona, Kentucky, Pennsylvania, and Wyoming, explicitly prohibit caps on damages.15 A 2006 analysis showed states that had successfully adopted caps on damages have 3 to 4 percent lower health care expenditures than those states without caps.16 These reductions translated into increases in private health insurance coverage.17 In states with reforms that directly reduce the expected malpractice award, such as caps on damages, physician supply increases by 3.3 percent.18 For example, Texas had a 59 percent larger annual growth rate of newly licensed physicians in the two years following reform compared with the two years before reform.19

This year has been remarkably successful for state-level reform, with nine states passing some type of medical liability legislation. North Carolina and Tennessee established caps on damages for the first time, with the North Carolina General Assembly overriding the governor’s veto of the bill. Oklahoma and South Carolina successfully enacted more stringent caps.20

Federal legislation

Whereas successes at the state level have been notable this year, until national standards are set, reform will remain inconsistent. With some state constitutions explicitly limiting medical liability reform and others having politically unfavorable environments, there is growing support for federal action on this issue. Medical liability reform has long been a strongly partisan issue, in large part lauded by Republicans and disparaged by Democrats.

The House of Representatives has passed comprehensive medical liability legislation more than a dozen times since 1995, as recently as 2005. However, from 2006 to 2010, legislation addressing liability never reached the House floor. In January 2011, the House Judiciary Committee held a special hearing titled Medical Liability Reform: Cutting Costs, Spurring Investment, Creating Jobs. During this session, experts testified on the damage that the current liability system is doing to our health care system and the need for comprehensive legislation based on successful state reforms. Several professional associations, including the American Medical Association, American College of Surgeons (ACS), and the American Congress of Obstetricians and Gynecologists, submitted statements supporting reform.21

The bill that has made the most progress in 2011 has been H.R. 5: The Help Efficient Accessible, Low-cost, Timely Healthcare (HEALTH) Act. This comprehensive bill comprises several traditional reforms, including a $250,000 cap on noneconomic damages, a three-year statute of limitations, joint and several liability, limits on attorney contingency fees, a collateral source rule, and limits on punitive damages. The House Energy and Commerce and Judiciary Committee has approved the legislation.22 In March 2011, the nonpartisan Congressional Budget Office (CBO) conducted an analysis of hypothetical reform with provisions similar to those in H.R. 5. The CBO estimated that mandatory and discretionary spending by Medicare and other governmental health care payors would be reduced by $50 billion and $1.6 billion, respectively. The CBO also estimated that premiums paid by employers that are tax-exempt would decrease, and the subsequent increase in employee wages would generate $13 billion in tax revenues. The CBO concluded that comprehensive medical liability reform would save the U.S. government a total of $65 billion dollars in 10 years.23

Other comprehensive medical liability reform legislation has been introduced by the 112th Congress. H.R. 2205, Ending Defensive Medicine and Encouraging Innovative Reforms, introduced by Reps. Charles Dent (R-PA-15) and Erik Paulsen (R-MN-3), calls for caps on damages, allows periodic payments of awards, sets a fair-share rule, and requires that selected experts determine the merit of each case. H.R. 896, Medical Justice Act, introduced by Rep. Michael Burgess (R-TX-26), caps noneconomic and total damages, allows for periodic payment of awards, sets a fair-share rule, enacts a statute of limitation, and requires that a jury awarding punitive damages be unanimous in its decision. Additional proposed legislation, including H.R. 157: The Health Care Safety Net Enhancement Act, introduced by Rep. Pete Sessions (R-TX-32)—which protects health care professionals who provide medical services in emergency situations from liability—has also been proposed, but does not address other aspects of liability reform.22

Alternative dispute resolution

Due to the fact that significant political roadblocks continue to discourage passage of federal and state level tort reform legislation, advocates for medical liability reform have turned their attention toward alternative methods of resolving malpractice claims. In 2010, $25 million in federal funding was allocated to the Agency for Healthcare Research and Quality (AHRQ) to develop demonstration projects for programs that will improve patient safety, reduce defensive medicine, and reform the liability system at the provider level. The Affordable Care Act authorized an additional $50 million for demonstration projects addressing medical liability and patient safety.

An early champion of non-traditional approaches to resolving liability claims is the University of Michigan Health System in Ann Arbor, which developed a disclosure and offer model. Under this paradigm, the provider institution and liability insurer proactively identifies adverse outcomes, investigates them, apologizes for them, and offers reimbursement without seeking to establish fault. This program led to a 36 percent reduction in frequency of claims, a 30 percent reduction in time until resolution, and a 44 percent reduction in cost per lawsuit.12 The AHRQ has funded planning grants and demonstration projects that would expand the Michigan disclosure-and-offer model outside of self-insured hospital environments.

Table 2. Alternatives to traditional legislation9,12

Other approaches involve specialized branches of the judiciary system. For example, a small group of judges—trained in malpractice and assisted by a court attorney trained in nursing—adjudicate a claim, and the case is then seen to resolution by a single judge at a private hearing. Other projects focus entirely on prevention of adverse events before harm or subsequent litigation ever occurs. These projects seek to improve patient-physician communication about care plans, care-team cooperation, and adherence to evidence-based guidelines.12 (See Table 2,  for descriptions of alternative approaches to liability reform.)

 

These alternative dispute resolution mechanisms have the potential to discourage claims from going through the costly litigation process, and some projects aim to prevent the adverse events from occurring in the first place. Many of these alternatives keep mediation of claims within the hospital system. The hope is that by avoiding litigation, a greater number of injured patients will receive compensation sooner and more equitably, even if the amount per patient is less, and that adverse incidents can serve to inform the systems of care about what steps they need to take to avert future adverse events. Despite the fact that these alternatives could reduce the frequency of adverse events and malpractice, some providers and insurers are still hesitant to take on risk without strong proof of the benefits or protection from federal or state laws.9

Conclusion

The future of medical liability reform remains uncertain, but the negative impact on physicians and patient care of our current inefficient and ineffective system worsens every year. In the current deficit reduction-focused environment, with Medicare potentially on the chopping block, it is critical to consider medical liability reform as a means of cutting health care spending, improving the patient-physician relationship, and increasing access to care. Action from medical professionals and patients is critical to express the urgency and wide base of support for reform efforts. The ACS supports medical liability reform, and specifically recommends the following:21

  • Caps on noneconomic damages
  • Alternatives to civil litigation, such as health courts and disclosure-and-compensation offers
  • Protections for physicians volunteering services in an emergency situation
  • Shields for physicians who follow established, evidence-based guidelines of care
  • Collateral source offsets that prevent duplicate payments
  • Fair share rule
  • Periodic payment of future damage awards totaling more than $50,000
  • Limits on plaintiff attorney contingency fees
  • Application of punitive damages only when the evidence indicates that the defendant intended to harm the claimant

The growing number of demonstration projects investigating alternatives to medical liability legislation highlights the sustained interest on behalf of providers, insurers, and patients to solve this problem with or without legislative help. These novel approaches may provide solutions that tort reform is incapable or politically hindered from achieving. Although public statements of support for medical liability reform are still sparse, funding for these projects from the Obama Administration provides hope that both parties may cooperatively address this issue.


References

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  2. Studdert DM, Mello MM, Gawande AA, Gandhi TK, Kachalia A, Yoon C, Puopolo AL, Brennan TA. Claims, errors, and compensation payments in medical malpractice litigation. N Engl J Med. 2006;354(19):2024-2033.
  3. American Medical Association. Another state added to liability crisis list. March 6, 2006. Available at: http://www.ama-assn.org/amednews/2006/03/06/prca0306.htm. Accessed September 20, 2011.
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  8. Studdert DM, Mello MM, Sage WM, DesRoches CM, Peugh J, Zapert K, Brennan TA. Defensive medicine among high-risk specialist physicians in a volatile malpractice environment. JAMA. 2005;293(21):2609-2617.
  9. Kessler DP. Evaluating the medical malpractice system and options for reform. J Econ Perspect. 2011;25(2):93-110.
  10. Mello MM, Chandra A, Gawande AA, Studdert DM. National costs of the medical liability system. Health Aff. 2010;29(9):1569-1577.
  11. CBS News. Obama’s AMA speech on health care. June 15, 2009. Available at: http://www.cbsnews.com/stories/2009/06/15/politics/main5090277.shtml. Accessed September 20, 2011.
  12. Kachalia A, Mello MM. New directions in medical liability reform. N Engl J Med. 2011;364(16):1564-1572.
  13. Budetti PP, Waters TM. Medical Malpractice Law in the United States. The Henry J. Kaiser Family Foundation. May 2005. Available at: http://www.kff.org/insurance/upload/Medical-Malpractice-Law-in-the-United-States-Report.pdf. Accessed September 20, 2011.
  14. Walters A. Medical liability reform and the states. Bull Am Coll Surg. 2010;95(3):29-30.
  15. American Medical Association. Caps on damages. 2011. Available at: http://www.ama-assn.org/resources/doc/arc/capsdamages.pdf. Accessed September 20, 2011.
  16. Hellinger FJ, Encinosa WE. The impact of state laws limiting malpractice damage awards on health care expenditures. Am J Public Health. 2006;96(8):1375-1381.
  17. Avraham R, Schanzenbach M. The impact of tort reform on private health insurance coverage. Am Law and Econ Rev. 2010;12(2):263–264.
  18. Kessler DP, Sage WM, Becker DJ. Impact of malpractice reforms on the supply of physician services. JAMA. 2005 Jun 1;293(21):2618-2625.
  19. American Medical Association. Medical Liability Reform Now! 2011. Available at: http://www.ama-assn.org/resources/doc/arc/mlr-now-2011.pdf. Accessed September 20, 2011.
  20. Kuppens JF, Thompson JT. State tort reform in 2011. September 16, 2011. Available at: http://nmrs-white.logicsouth.com/articles/state-tort-reform-in-2011. Accessed September 20, 2011.
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  23. Congressional Budget Office. Reducing the deficit: Spending and revenue options. March 2011. Available at: http://www.cbo.gov/ftpdocs/120xx/doc12085/03-10-ReducingTheDeficit.pdf. Accessed September 20, 2011.

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