Tort Reform: Treating the Symptoms, Not the Diseuse?

The following article was written by Gary Jackson, an attorney in private practice in Walnut Creek, CA. He specializes in the area of health care law and has published numereus articles on risk management and legal topics.

Introduction Today, we face a universally acknowledged crisis in the U.S. health care delivery system. As a nation, we spend a greater percentage of our gross domestic product on health care (14 percent) than any other industrialized nation (ref. 1). Yet when we compare our aggregate health statistics with those of other industrialized nations, the results are shameful. In life expectancy, infant mortality, and most general barom- eters of health care, we find ourselves at levels most civilized nations would deplore (ref. 2). No one questions that the best of U.S. medicine is the best that the world has to offer. Yet sadly, the average care that it offers falls below the level of that found in Western Europe and Japan. Why, when so much human talent and wealth is poured into our health care system, do we get so little in return for it?

As health care risk managers, we are trained to analyze and limit the losses that waste precious health care resources. Perhaps no other profession is so acutely aware of the overall costs imposed on the health care system by the legal climate

within which we operate. The direct costs imposed by the current system of compen- sating victims of medical malpractice are small in comparison with the overall cost of health care. Perhaps 1 percent of total health care costs are attributable to this area (ref. 3). One can argue with consider- able merit that this 1 percent is woefully misspent, that far less than half of the money reaches the injured parties, and that administrative costs of litigation account for far too much of the total. But the real cost of our legal climate is in its demoralizing and enervating effect on the nation’s physicians, who are the key to any attempt to create an effective cost- efficient health care system. Any reform of medical liability that addresses only those limited direct costs and that ignores the more significant indirect costs of medical malpractice liability is a symptomatic, nor a therapeutic, approach to the problem.

Indirect Costs of Our Medical Malpractice Climate A recent Consumer Reports article estimated that up to $200 billion of the $817 billion we spend annually on health care in the United States is wasted on useless treat- ment and administrative inefficiency. The same article cites an American Medical Association ( A M ) study reporting phy- sician estimates that about 17 percent of their cost of practice (counting insurance premiums, defensive medicine, and record-keeping) was attributable to medical malpractice concerns (ref. 4). The article criticized the AMA report for its lack of objective verification. Although it is true that the motive for unnecessary treatment can never be objectively quanti- fied, there is certainly no doubt that a great deal of it is occurring. To the extent

that financial self-interest plays a part, increasing use of utilization review tech- niques can deal with this issue. But if we accept the physicians’ own explanation that much of this unnecessary treatment is the result of fear of accusations of negligence, we begin to see the real cost of our medical-legal climate.

In most situations both the patient and the

doctor profit by the full deployment

of the medical armamentarium, whether

appropriate or not.

No one who has worked in the health care industry can fail to appreciate the reality of this fear. Doctors, particularly those in high-risk specialties, live in terror of being dragged before some tribunal where they may be forced to spend years defending a decision made in a 15-minute office visit against attorneys and medical experts who have the advantage of hind- sight and endless time in which to find fault with any misstep by the doctor.

The results of this fear are all too obvious: We have bred a generation of physicians to whom cost is no object. Why should a doctor risk his or her reputation and license to spare an insurer or employer the hundreds of dollars that it takes to do a CT scan on every patient who comes into the emergency room complaining of a head injury? The doctor normally has not even the disincentive of treating a patient who will personally have to spend a small fortune to pay for the unnecessary CT scan. Indeed, all the incentives are in the other direction. In most situations both the patient and the doctor profit by the full deployment of the medical armamen- tarium, whether appropriate or not. Those who suffer most are the approximately 35 million Americans who are priced out of any participation in the health care market by the increasingly unaffordable cost of health insurance (ref. 5).

The Culiforniu Experience: MICRA The only thing new in history, we are told, is the history we have not read. This is not our first brush with the bogeyman of medical malpractice. It is instructive to review the experience of California with this issue as we debate what to do about health care liability on the federal level. For several years now, Senator Orrin Hatch (R-UT) has been proposing a federal statute on medical malpractice reform, which is patterned after his own state’s law in this area. The Utah law, in turn, is derived from the groundbreaking laws passed by the California legislature in 1975-the Medical Injury Compensation Reform Act (MICRA). Because California now has 17 years’ experience with this law, some analysis of the probable effect of creating a similar federal law is possible.

To begin, let us review the situation as it existed in California in 1975. At that time, insurers, faced with mounting losses in the medical professional liability segment of their market in the state, responded by doubling and tripling their premiums for physicians and hospitals or by withdrawing from the market altogether. The response was dramatic. A statewide strike by phy- sicians was called, and physicians were urged by their professional associations to withhold all nonemergency care. This resulted in massive layoffs and financial havoc in the state’s hospitals. The state’s governor at the time, Jerry Brown, called a special session of the state legislature to deal with the problem. In that session, representatives of the state’s most powerful lobbies-the trial lawyers, the physicians, and the insurance industry-each aggres- sively pursued their own agenda. The compromise result, brokered by Senator Barry Keene, became known as ABIXX, or MICRA.

In its original form, MICRA consisted of the following parts:

Plaintiffs in medical malpractice suits remained entitled to pursue all their eco- nomic damages, but an arbitrary limit of $250,000 was placed on their ability to recover noneconomic damages (for example, pain, suffering, loss of consortium, and so on) (ref. 6).

W Defendants in medical malpractice cases were allowed to introduce into evidence the collateral benefits obtained from third parties by plaintiff as a result of the negligent injury. In effect, expenses paid by the patient’s insurers would be deducted from the damages he or she would be able to claim. This abrogated the old “collateral source” rule whereby insured plaintiffs were allowed the “double recovery” of getting both their own insurance benefits and damages from plaintiff for the same injury (ref. 7).

A procedure was created whereby courts would have the power to award anticipated future damages to injured plaintiffs in the form of periodic payments over time. This would allow insurers to pay damages on an “as needed” basis rather than in one lump sum. The reform was intended to address the complaints of insurers that heirs of plaintiffs were often unjustly enriched by lavish awards to plaintiffs who would then die long before any of the needs anticipated in the damage award would arise (ref. 8). W Statutory limits were imposed on con- tingency fees in medical malpractice cases. Physicians and insurers claimed that the large legal fees generated by contingency fee arrangements (whereby plaintiffs attorneys would receive one-third to one- half of the client’s award if successful and nothing if unsuccessful) created a sort of “litigation lottery” in which avaricious attorneys would create malpractice lawsuits in order to generate fees. The actual limits imposed by the statute have been changed over the years, but they are still consider- ably less than those available in other personal injury cases (ref. 9). W A new statute of limitations shortened the available period for filing a medical malpractice claim (ref. 10). W Plaintiffs in medical malpractice suits were required to give defendants 90 days’ notice prior to filing a complaint in order to allow early disposition of meritorious claims and to avoid lawsuits generated by correctable misunderstandings (ref. 11). W The former state medical board was recreated as the Board of Medical Quality Assurance and given new enforcement powers. Doctors were allowed to form physician-owned insurance companies to

augment the shrinking pool of insurers available in the marketplace (ref. 12). W Health care providers were permitted to insert mandatory contractual arbitration clauses in their contracts with patients (ref. 13).

Those provisions have been widely copied in both sister-state and proposed federal legislation. Although malpractice premiums for physicians in California have continued to increase since the enactment of the law, most studies have indicated that present rates are nearly 50 percent lower than they would have been without the law (ref. 14). By far the most effective provisions have been the cap on noneco- nomic damages and the offset for collateral benefits. Together, those account for over half of the total savings (ref. 15). The other reforms seem far less effective at cost control. Relative to other states, California has gone from having nearly the most expensive average premium in 1975 to ranking somewhere in the middle of the states at the present time. In addition, medical professional liability insurance is widely available in the state, and the insurers are, in the main, solvent. There is little question remaining that MICRA has been a success in reducing the cost and unavailability of medical professional liability insurance.

Limits of MlCRA’s Effectiveness Even if we concede that MICM has been effective in reducing the direct costs of medical malpractice, we still have not addressed the question of its impact upon the indirect costs discussed earlier in this article. This very controversy was the basis upon which the MICRA law was nearly overturned in a 1984 case before the California Supreme Court, American Bank and Trust v. Community Hospital of Los Gatos (ref. 16). The original decision in that case reviewed the spiraling costs of health care in California since the 1975 MICRA law and invalidated that law because ‘‘no rational basis” could be shown for violating the equal protection rights of injured malpractice plaintiffs in the absence of proof that health care costs

were lowered by the bill. No such proof existed. To the contrary, the overall cost of health care in California had displayed the same inflationary trends seen else- where in the United States. In an unusual response, the state legislature filed an amicus curiae brief during the rehearing of the case, in which it stated that the purpose of the law was never to reduce health care costs, but simply to reduce the cost of medical liability insurance premiums, and that, having succeeded in that goal, the law should be upheld (ref. 17). Upon hearing that argument, the state Supreme Court reversed itself and upheld the law.

As long as physicians feel threatened by

the medical4egal climate, they will not be

inclined to cooperate in reducing

unnecessary medical costs.

In this controversy, we can see the inherent limitations in the MICRA approach to reforming medical liability. Instead of addressing the indirect cost of defensive medicine and administrative overhead, it is aimed at the relatively insignificant direct costs of professional liability insurance premiums. As long as physicians feel threatened by the medical- legal climate, they will not be inclined to cooperate in reducing unnecessary medical costs. Yet without that cooperation, affordable, effective health care cannot result. Doctors must know that they can make reasonable judgments and not suffer the indignity of being “Monday-morning quarterbacked” by attorneys and juries.

Alternative Approaches to Medical Liability lssues This is not to say that physicians should be able to avoid accountability for their professional practices. Every state already has a medical licensure board to weed out incompetent and unethical doctors. It is an unfortunate truth that many of those boards are understaffed, underfunded, and disinclined to aggressively pursue bad doctors. They must be revitalized. Only a competent, well-staffed, well-funded, dis-

interested state administrative agency is capable of policing professional medical practice. To leave that task to attorneys, courts, and juries is to ask the unqualified to judge what should occur in medical practice. To say that expert testimony by physicians governs the standard of care issue in such court cases is disingenuous. Any attorney who practices in this area for any length of time becomes aware that, in most cases, expert testimony can vary widely. Attorneys quickly learn where to find the medical opinion helpful to their position.

Nor is this to say that the victims of improper medical care should be without recourse. The fact is that modern medical care is inherently risky. For every patient saved by a new drug or new surgical pro- cedure, there are others who will suffer side effects and complications from treatment. We cannot ignore those people. But our present system of compensating them is more like a lottery than a rational attempt to address their real needs. All too often, the result depends more on the vagaries of the process than the reality of the need.

We already have a model for a system that is directed not toward fault-finding, but rather toward limited and certain compensation of injured victims without regard to fault. In the beginning of this century, we established workers’ compen- sation systems to balance the right of injured workers to get essential needs met without subjecting our vital industries to intolerable unlimited legal liability. Why not use the century of experience, both good and bad, that we have gained in the workers’ compensation area to craft a solution to the injured patient’s problems? Why must physicians be put through the public spectacle of a malpractice trial in order to compensate people who are often merely innocent victims of the inherent risks in the practice of modern medicine? Do these “witch hunts” in the presence of often pathetically injured victims really improve the practice of medicine? More often, they only add to the cost of health care through increasing the practice of defensive medicine and penalize physicians in inherently high-risk specialties such as ob-gyn, orthopedics, and anesthesia.

This is not to say that a workers’ compen- sation approach has no problems of its own. Indeed, California itself is saddled with a workers’ compensation system that is riddled with fraud and abuse and is the most costly in the nation on a per capita basis. Clearly, it is no remedy to adopt a no-fault workers’ compensation model in the medical liability area unless one is pre- pared to take the time and effort required to create an efficient system that is free of fraud. Most states have been able to do that; the fact that California has not is a useful bad example that points to potential problems to be avoided. Indeed, the most compelling argument one can make for the use of a workers’ compensation model to address medical liability is that we have had such extensive experience in this model that we already are familiar with its potential problems and benefits. There is no need to start from scratch.

Conclusion Adoption of a “no-fault” workers’ com- pensation approach to compensating medical injury victims is not likely to save money in the direct-cost portion of mal- practice costs. Indeed, the most recent large study in this area, the Harvard Medical Practice Study in New York state, found such a high incidence of “adverse events” and negligence in a review of 30,12 1 randomly selected medical records (adverse events in 3.7 percent of the hospitalizations, and 27.6 percent of those events a result of negligence) (ref. 18) that it is often cited by risk managers as a reason to stay with the current medical liability system. The logic behind that analysis is that any gain realized by less lavish awards in a workers’ compensation model would be more than offset by the increased number of potential claimants who, presently deterred by the rigors of litigation, would come forward as claimants if a no-fault model were adopted. That analysis is quite likely correct, but again is focused solely on direct costs.

We, as risk managers, must stop looking only at direct costs as a measure of our success. We exist within the health care system as a whole and we must be cognizant of the impact of our present medical liability

system on the health care system us a whole. If we succeed in reducing direct costs of professional liability by encouraging overtreatment and unnecessary diagnostic tests, we have created a problem that is demonstrably worse than the one we have solved. We have created a system in which the pursuit of an illusory perfection has become the enemy of ordinary good care. Physician anxiety over potential lawsuits replaces responsible medical judgment.

Doing nothing is an option if the present situation is acceptable. Can any of us really say that the present situation is acceptable?

References 1. Wasted health care dollars. Consumer Reports. 57(7):435-48, July 1992.

2. Ibid.

3. Supra.

4. Supra.

5. Supra.

6. California Civil Code $3333.2.

7. California Civil Code 13333.1.

8.

9. $6146.

10. California Code of Civil Procedure 1340.5.

11. California Code of Civil Procedure $364.

12. California Business and Professions Code 12000 et seq.

13. California Code of Civil Procedure 11295.

14. U. S. General Accounting Office. Medical Malpractice: Case Study on California. Washington, DC: U. S. General Accounting Office, Dec. 1986.

15. Sanyon, P. New Evidence on the Frequency and Severity of Medical Malpractice Claims. Santa Monica, CA: Rand Corporation, 1986.

16. 36 Cal.3d 359.

17. Mattesich, J. M. Amicus curiae brief in petition for rehearing of AB&fT v. Los Gatos. Sacramento, 1983.

18. Brennan, T. Results of the Harvard Medical Practice Study I and II. New England Joumal of Medicine. 324(6):370-84, Feb. 7, 1991.

California Code of Civil Procedure $667.7.

California Business and Professions Code