Are There Significant Healthcare Savings To Be Found In Reforming The Malpractice System?

 

Summary

• Massachusetts already has several levels of limits on malpractice suits and damages
  • Pretrial tribunals
  • Caps on non-economic damages
  • Caps on attorney’s fees
  • Malpractice rates set by the Insurance Commissioner
• Pretrial tribunals are not a significant barrier to pursuing a suit
  • The amount of bond necessary to move forward is too low and has remained unchanged since 1986
• Only damage caps have been conclusively shown to reduce malpractice insurance premiums
  • Massachusetts needs a so-called “hard” cap
• Measuring defensive medicine is nearly impossible
• Data in these areas are extremely hard to come by and a study can be found to prove just about anything
• Any change must be done carefully so as to protect the rights of those who are truly injured by malpractice
• In any event, savings to the healthcare system are likely to be small

 

In the current environment of out-of-control healthcare costs, many areas of potential savings are under consideration.  One of these is so called “malpractice tort reform.” The arguments for tort reform assume that if there were limits on malpractice awards and/or the suits themselves, healthcare providers would pay lower insurance premiums and would order fewer tests (so called defensive medicine), and the resulting savings would produce lower healthcare costs.  Is this really true?  More specifically, do the already existing laws in Massachusetts regarding malpractice suits and malpractice insurance result in lower healthcare costs and would they do so even more effectively if modified?

 

The most common types of malpractice controls used are limits on damage awards, impediments to frivolous lawsuits, limits on attorney and expert witness compensation and regulation of insurance premiums.  Massachusetts does all of these.

 

The first control that the Commonwealth of Massachusetts exerts is the malpractice tribunal.  The tribunal’s job is to decide if there is sufficient evidence to move a case to trial.  If the tribunal does not think there is enough evidence for a trial, the plaintiff must post a $6,000 bond to move forward.  The judge has the discretion to raise or lower the amount of the bond.  If the plaintiff posts bond, and the case moves forward, and the defense wins the case, then the bond goes to the insurance carrier of the defendant to cover the legal costs of the trial.[1]

 

One might expect that this tribunal system would present a significant barrier to lawsuits.  This is not necessarily the case.  The original law provided a $2,000 bond, but this was raised to $6,000 in 1986 in an effort to make it more expensive to pursue a claim.[2] Ostensibly this bond is meant to cover the defendant’s legal costs should the plaintiff choose to continue the suit and lose.  The legal costs of defending a medical malpractice suit, however, usually far exceed $ 6,000,[3] and the excess costs may never be recovered.  $6,000 may have been a significant impediment in 1986, but inflation has decreased that barrier in the quarter century since the amount was last adjusted.

 

The burden of proof necessary for the tribunal hearing is less than that required for trial.  The plaintiff presents an “offer of proof,” consisting of documentation of the complaint.  The tribunal then decides whether there is the possibility of a judgment if everything the plaintiff says is true.[4] The tribunal is not charged with deciding if what the plaintiff claims is true.

 

It is not apparently particularly difficult to get past the tribunal phase.  According to malpractice attorney advertising, “This is largely a formality for an experienced malpractice attorney. The burden is not that high to establish sufficient merit before the tribunal.”[5] Between January 2003 and November 2008, tribunals found for the plaintiff 80% of the time.[6]

 

These findings suggest that the tribunals do not present a significant barrier to malpractice suits.  It might be wise to consider whether the burden of proof at the tribunal stage and/or the bond that needs to be posted should be higher so as to more effectively discourage frivolous suits.  Care needs to be taken, however, to not discourage meritorious lawsuits.  Also, it is unclear whether or not such pre-trial screenings have any effect at all on malpractice insurance rates.

 

Massachusetts’s has other curbs on malpractice suits as well.   Non-economic damages are limited to $500,000 unless there are “special circumstances.”[7] The Massachusetts Medical Society believes that the Massachusetts non-economic damages cap is ineffective and should be replaced with a so-called “hard” cap indexed to inflation. Critics have pointed out that the “special circumstances” rule is too often invoked and that the cap is therefore nearly meaningless. [8]

 

In addition to the cap on non-economic damages, Massachusetts places limits on attorney’s fees. In Massachusetts, attorney fees are limited to 40% of the first $150,000.00 recovered, 33% of the next $150,000.00, 30% of the next $200,000.00, and 25% of any recovery greater than $500,000.00.[9] Whether this is a meaningful limit is unclear.

Do limits on damages, attorneys’ fees and other controls on malpractice suits result in lower malpractice insurance and therefore lower healthcare costs?  Many studies have been done and the overall results are mixed and not at all clear. [10] Arguments can and have been made on both sides of the controversy. Unfortunately,” the empirical evidence on the effect of changing medical liability laws on spending is mixed,”[11] which makes drawing conclusions difficult if not impossible.

Proponents of tort reform as a cost-saving measure argue that caps on damage awards result in lower premiums.  The evidence suggests that this is in fact the case, although the size of the effect is less clear.  Claude Williams and Michele Mello, who have reviewed the available studies, variously find an effect of 5-30% of premiums.[12] The Congressional Budget Office, however, finds that while this effect may be real, it does not necessarily represent an improvement in the “efficiency” of the overall system, just a shift in where the burden falls, and may disproportionately harm those who have been most damaged by medical negligence.[13] It is also unclear whether damage caps really result in lower healthcare costs overall.  Texas has a limit on non-economic damages and has one of the most expensive healthcare markets in the country. [14]

Proponents also argue that tort reform would reduce so-called defensive medicine and therefore directly reduce healthcare costs.  Whether this is in fact true is completely unclear.  While some studies claim that 80-90% of specialists surveyed practice defensive medicine[15] others note that defensive medicine practices are “difficult to estimate.”[16] The Congressional Budget Office believes savings in this area would be “very small.”[17]

Other controls on malpractice suits such as curbs on attorney fees, pretrial barriers (such as Massachusetts’ tribunals), etc. have little impact on the costs associated with malpractice suits. [18]

Do the barriers in place in Massachusetts result in lower costs here?  One might expect that the economic damages cap would. This is apparently not so.  Massachusetts ahs some of the highest malpractice settlement payouts in the nation.  This does not, however, result in higher malpractice insurance premiums, which dropped (on an inflation adjusted basis) from 1990 to 2005.[19] Massachusetts, however, is the only state in the country that has an insurance commissioner who effectively sets insurance premium rates. [20]

Overall, it is unclear whether the potential effect on healthcare costs of tort reform exists at all.  In any event, it is likely to be small.  “The upper bound of savings appears to be less than 1 percent of overall health care spending.”[21] In addition, those savings pale in comparison with the costs of the medical errors that these suits are designed to keep in check. [22]

Is there an answer?  Perhaps there is.  First of all, the majority of saving will probably not be found in tort reform.  The data are not very good. For example, although one can find the statistic that of the malpractice suits that reach trial 92% are won by the defense,[23] I have been unable to determine how many settled out of court, before or after the tribunal phase. In order to make sensible decisions on malpractice tort reform, better data are needed.

I suggest the following:

1. the state should begin keeping records of numbers of suits filed and their final dispositions—through all phases and including amounts of awards, and if those records do in fact exist, they should be more easily available to the public. Transparency would be very helpful in raising the level of debate in this area.
2. The amount of bond required to move forward after a loss at the tribunal phase should be higher and indexed to more accurately reflect the legal cost of defending a suit.  One might consider whether the plaintiffs’ attorneys, who generally work on commission, and therefore have little or nothing to lose by pressing for a settlement should post some of that bond.
3. The non-economic damages cap should be firm. If it is not firm, then it might as well not exist.  Also a firm cap is the only area actually shown to be effective at reducing insurance rates.
4. The insurance commissioner’s office should look at the rates being charged in Massachusetts relative to other states and determine what factors, if any, seem to underlie any variations.

Pending additional data, these are the only recommendations I feel comfortable making.  The waters of tort reform are very muddy, and the only things that seem clear is that more study is needed and that this is not an area of enormous potential savings.