New directions in liability reform

America needs transformative medical liability reform. The current liability system costs $55 billion annually, accounting for 2.5 percent of annual health care spending.1 Traditional reforms, such as caps on noneconomic damages, have had only limited success in reducing costs of liability premiums, improving quality of care, or decreasing the cost of defensive medicine.2,3 Reducing medical liability costs is one goal of reform; another is to make the system work better as a mechanism of quality improvement.

The existing medical liability system fails nearly all of its major stakeholders: patients, physicians, and insurers. The system compensates patients inequitably and slowly.4 The average time from injury until compensation is five years.4 The system is difficult to access, so only a small percentage of patients who are injured due to medical error or negligence seek or receive compensation.5 For physicians, the system is unpredictable. Nearly one in four claims is not resolved concordantly with its merit.4 The punitive nature of the system discourages clinicians from reporting errors and may have a tremendous professional and personal impact on physicians who are sued.1,6-9 The insurance market also is unpredictable and volatile and has experienced many crises in the last 50 years.10 Transformative liability reforms that address all of these shortcomings are urgently needed.

Traditional reforms

Medical liability reforms in this country typically have focused on tort reform.3 Historically, three major approaches have been used: limiting access to the courts, modifying liability rules, and limiting damage awards. The effects of tort reform on health care and liability are not easily evaluated. Reforms can be assessed based on their impact on liability metrics, including frequency of claims, costs of claims, overhead costs, and insurance premiums. They can also be assessed using care-related metrics such as the costs of defensive medicine, physician supply (especially in high-risk fields), and quality improvement measures.

Studies that have evaluated the effect of care-related metrics have found that most tort reforms have little or no impact.11 The exceptions are collateral-source offsets and caps on noneconomic damages. Collateral-source offsets allow defendants to deduct from their payment to a plaintiff any compensation for injury that a plaintiff receives from external sources. Under traditional tort law, such deductions are prohibited.2,3 Caps on noneconomic damages limit the compensation that plaintiffs may seek for physical or emotional distress. Caps on noneconomic damages and collateral-source offsets have been found to have a small but statistically significant impact on both the practice of defensive medicine and on physician supply.2

Tort reforms have been adopted in up to one-half of all U.S. states.2 Some states have adopted multiple reforms; however, these reforms have limited scope. They aim to control the costs of the liability system without addressing other fundamental issues, such as safety, quality, and equity in compensation.

Because of these limitations, tort reform alone will not solve all of the problems in the liability system. For instance, in spite of previous reforms, the current liability system does not serve patients fairly. Injuries occur in 3 to 4 percent of all medical cases, and in 1 percent of all medical cases those injuries result from negligent medical care.12 Among patients injured by negligence, however, only 2 to 3 percent file claims.5 In contrast, the system encourages and rewards many claims of uncertain or no merit. Compensation is correlated with merit, but about one-quarter of cases are resolved discordant with their merit.4 Claims reviews have found that approximately one-third of all claims were not associated with injuries, yet 24 percent of those claims were compensated.4 In reviews of closed claims, approximately 26 percent are of uncertain merit, and 54 percent of these claims are compensated. Of the 44 percent of claims that are meritorious, 79 percent of patients are compensated.4,5,13,14 For all claimants, payment is slow.4 Reforms are needed that address the fundamental issue of inequitable compensation, in addition to patient safety and quality of care.

Possible liability reforms

Several proposals for transformative liability reform have been put forward, including establishment of safe harbors, early disclosure and offer (D&O) programs, judge-directed negotiation programs, and health courts. Each approach has advantages and disadvantages and may address fundamental system failures to some degree.

Safe harbors provide a legal defense for physicians who adhere to a credible and applicable clinical guidelines.3 Safe harbors have attracted wide, popular interest because people easily agree with the notion that a physician should not be penalized for following accepted standards of care.3 However, selecting those guidelines is challenging, as experts in a field may themselves disagree on best practices. Furthermore, not all medical conditions can be treated using standardized guidelines, and thus safe harbors could not be applied to all liability claims. Finally, guidelines would need to be under constant review to be able to respond to the rapid pace of biomedical research that influences medical practice.3 By strengthening the weight of existing guidelines in liability claims and providing physicians with some guidance about expected standards of care, safe harbors could improve quality and potentially decrease defensive medical costs. Unfortunately, the limited data from states that have experimented with safe harbors make it difficult to measure these benefits.3

D&O programs focus on telling injured patients early on what went wrong and promptly offering compensation when appropriate. One advantage of these programs is that hospitals and insurance companies can implement them without a legislative mandate. In fact, some institutions and insurance companies have already begun to use this approach. Successes at individual institutions such as the University of Michigan are promising and have roused interest from a broad range of stakeholders, including the plaintiff’s bar.3 (For more information, read about the University of Michigan’s D&O program.)

However, implementation of D&O may be more difficult than it first appears. Significant culture changes are required to achieve the routine reporting and disclosure needed for the reform to succeed. Furthermore, these programs require considerable institutional investment. Physicians and hospitals also may approach patients before they obtain legal counsel, which could deter patients from seeking representation when seeking compensation.15 Thus, D&O programs have wide theoretical appeal, but practical considerations may limit their successful implementation.

Another approach to transformative liability reform is judge-directed negotiations. In this system, claims would be routed to a subset of judges who have received special training and are assisted by neutral court attorneys who also have health care degrees, such as nursing degrees. These judges would encourage earlier settlements.16 As with D&O programs, no new legislation is required to implement judge-directed negotiations. This proposal also attracts a broad range of stakeholder interest for its potential to address failures in the current system, including long compensation delays and inconsistencies in decisions.17 Judge-directed negotiations would also prevent huge jury verdicts, which account for the worst excesses in the current system.

However, establishing a judge-directed negotiation system requires some level of investment, especially in judicial talent and education.18 Furthermore, claims under this system could be resolved faster than in the current system, but judge-based intervention would still occur rather late in the dispute. Overall, judge-directed negotiations have the potential to address the challenges in the current system, but have not yet been widely adopted and fail to occur early in the dispute process.

Another type of transformative liability reform, specialized health courts, has been suggested as a viable option. This model would involve creating a new administrative court system to process liability claims. Specialized judges would hear claims and issue written decisions. Courts would employ neutral medical experts to review the evidence. Health courts would also apply a broader standard than negligence, such as “avoidability,” as the basis for determining patient compensation.3

Health courts align well with liability reform goals in several ways. They would likely encourage providers to use information from claims to learn why errors occur and how to improve patient safety. A written record of the cases could promote consistency in adjudication and inform physicians of expected legal standards. Health courts would also provide a quid pro quo for most stakeholders. Although more cases would be eligible for compensation, and claims would be easier to bring under health courts, judges’ rulings would create a written legal precedent that would make decisions more predictable and limit the number of large jury awards. Although individual compensation levels may be lower, health courts would make awards more attainable.19 However, this increase in the number of compensated patients will likely offset the savings from lower awards and overhead costs, resulting in modest, if any, cost reductions.19,20

Furthermore, health courts face potential legal challenges. In some states, eliminating a jury trial in liability claims may be prohibited under the state constitution.15 Federal constitutionality has been questioned, as well.21 So, although health courts have the potential to address many of the shortcomings of the current system, they also would require restructuring the system and may not produce any cost savings.

A paradigm shift

All of the options for transformative reform may control costs and reduce inequitable compensation to greater or lesser extents. However, reforms must also address the current system’s lack of accountability to patients. Medical litigation focuses primarily on individual clinicians, but in the health care community it has become fashionable to discuss medical errors solely as “system failures.” The reality is that both individual and systems errors occur, often in intertwined ways.22 Professional self-regulation is seen as weak, and data support this perception. Although nearly one in five physicians say they have personal knowledge of an impaired or incompetent colleague, only 67 percent of those physicians have reported that information. Members of the health care community worry that reporting incompetent physicians will attract a punitive response or no response, and attitudes about reporting vary across high- and low-liability states.23

Inequity and inaccuracy in patient compensation and fears of reprisal and punitive action are problems that must be addressed. However, attention is only turned to reforming the liability system when crises arise. Yet in the midst of a crisis it is difficult to make decisions and institute the transformative reforms needed to improve the litigation system.

True reforms must include a paradigm shift away from liability and toward accountability. Rather than simply focusing on individual versus system faults, reforms should promote a “just culture” in which “people are not punished for making errors, but deliberate violations and misconduct are not tolerated.”24 The primary objective of liability reforms must shift from cost-containment to supporting safe patient care and responding justly to injured patients.

This paradigm shift would satisfy what most patients want from the liability system: a system that is patient-centered, that focuses on addressing the root cause, and involves the patient and family in a meaningful way including involvement early in the error investigation.25 A patient-focused system also would promote robust self-regulation among physicians and hospitals. If the system shifts away from liability as the main mechanism of regulating quality, the profession needs to be able to assure the public that it is on the job. Just culture principles would align well with this patient-focused regulatory environment.24,26

There should be an open, fair, and just culture in which individuals are held accountable when they have erred but in a less punitive way than is done now. When errors occur, we must delineate system failures from individual failures, and respond appropriately to both problems with solutions that support patient safety and improved quality. Finally, a patient-focused system would be transparent with respect to the failures and successes in achieving accountability. To achieve that aim, physicians and hospitals must commit to using the information collected in error investigations to strengthen quality improvement and accountability.


Reforms that can transform the current medical liability system into a system that is patient-focused—in which safety, quality, accountability, and equity are paramount—will require a sustained commitment and iterative efforts from the health care community. The first step is setting up experiments with innovative reforms that are focused on the appropriate goals. The regulatory system must begin to support notions of just culture as well as mechanisms for early dispute resolution.

Furthermore, providers and insurers must publicly demonstrate a commitment to vigorous self-regulation; if liability is no longer the main mechanism of enforcing quality standards, the medical community must assure the public that it can assume greater responsibility for that task. Encouraging this paradigm shift and looking toward reforms that solve shortcomings in the liability system beyond cost containment are paramount to developing a system that truly drives quality and safety improvements. The American College of Surgeons should seize the opportunity to lead surgeons nationwide in a movement toward transforming and revamping our medical liability system.

This article is based on the keynote address that Michelle Mello, JD, PhD, presented at the Medical Liability Reform Summit. See the summit agenda for details.


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  20. Studdert DM, Brennan TA. No-fault compensation for medical injuries: The prospect for error prevention. JAMA. 2001;286(2):217-223.
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