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Review of Reforms to Our Medical Liability System

This study examines the impact of medical liability reforms on the frequency and size of malpractice claims, malpractice costs, and patient safety.

By Fred J. Hellinger, Ph.D.* and William E. Encinosa, Ph.D.*

December 31, 2009

Abstract
I. Introduction
II. Background on the Medical Liability System and Examples of Reforms
III. The Impact of Reforms on Costs and Patient Safety
IV. Final Remarks
References

Abstract

Over the past 30 years, a great deal of attention has been paid to our Nation's system for handling medical malpractice claims. Historically, this attention reflected concerns primarily about the impact of our medical liability system on the cost and availability of medical liability insurance. In response to these concerns, a number of States have enacted reforms that modify the rules surrounding litigation involving malpractice claims (e.g., certificate of merit requirements, pre-trial screening panels, caps on damage awards, the implementation of periodic payments, joint and several liability modifications, collateral source offset rules, and limits on attorney's fees).

In recent years, medical liability system reforms have focused more on promoting patient safety and reducing the number of lawsuits filed. In its publication "To Err is Human," the Institute of Medicine estimated that between 44,000 and 98,000 Americans die each year as a result of medical errors. Many patient safety experts support programs that provide for the full disclosure of medical errors, rapid and fair compensation, and the collection of complete and timely data. These programs are intended to reduce the likelihood of patients filing lawsuits and to enhance the capacity of health care providers to reduce the probability of future patients experiencing similar problems. Currently, there are a number of medical institutions and insurers that operate such programs.

This study examines the impact of medical liability reforms on the frequency and size of malpractice claims, malpractice costs, and patient safety. There is some research on the impact of reforms on the frequency and severity of malpractice claims, though results often conflict; but, there is scant evidence about their impact on patient safety because information about the number of medical errors is scarce and often inaccurate. Nevertheless, this study reviews what is known and highlights the need for future research in this area.

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I. Introduction

Our current medical liability system is designed to provide fair compensation to patients who suffer injury due to medical negligence and to reduce the likelihood of patients being harmed in the future by preventable medical errors. Critics of the system, however, claim that it does not accomplish these goals. Yet, among these critics there is much disagreement on how exactly the system is flawed, to what extent, and on appropriate solutions to the system's perceived problems. The most widely cited concerns about the medical liability system relate to the system's impact on costs and access to liability coverage, its impact on patients' safety, and the administrative burden of litigation.

In order to address these three disputed limitations of the current tort system—costs, patient safety, and administrative burden—a number of reforms have been proposed, and some have been implemented by States and/or health systems. Some examples of the most commonly discussed reforms to our medical liability system are:¹

Full disclosure/early offer programs.
Certificate of merit programs.
Caps on damage awards, periodic interim payment rules, joint and several liability reforms, collateral source rule reform, and the abolishing of punitive damages.
Pre-trial screening panels.
Health courts.

This manuscript will examine different approaches to reforming our current malpractice liability system and review what is known about the impact of these approaches on health care costs and patient safety. Section II provides a brief review of our medical liability system and some examples of reform models. In section III, we examine data on the impact of reforms on costs, health outcomes, and patient safety. The final section includes closing remarks.

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II. Background on the Medical Liability System and Examples of Reforms

While there is disagreement about the nature of the shortcomings of the medical liability system, criticisms of the system tend to focus on several major areas. First, many health care providers, analysts, and policymakers have voiced concerns about the failure of the tort system to reduce medical errors. Some are concerned that the system may actually hamper progress on patient safety because it may dissuade physicians from taking part in efforts to disclose, examine, and study the underlying causes of medical errors. Studdert² states: There is a deep-seated tension between the malpractice system and the goals and initiatives of the patient safety movement. At its root, the problem is one of conflicting cultures: trial attorneys believe that the threat of litigation makes doctors practice more safely, but the punitive, individualistic, adversarial approach of tort law is antithetical to the nonpunitive, systems-oriented, cooperative strategies promoted by leaders of the patient safety movement.

Second, some critics believe that our medical liability system contributes to rapidly rising health care costs, primarily because the threat of malpractice litigation may provide an incentive for health care providers to order services that are not medically necessary. In addition, some critics believe that the frequency of malpractice claims and the size of awards have led to increases in physician liability premiums, which in turn have led to shortages of physicians in some communities, particularly in rural areas.

Third, some argue that the current liability system is inefficient and has resulted in a large administrative burden of litigation, while not adequately compensating victims. One study reported that only 22 cents of every dollar that goes through the tort system is actually spent on consumer compensation.³ Moreover, some argue that most victims of medical negligence do not seek compensation through the tort system while at the same time the system often compensates those who suffer injuries not related to medical negligence. A landmark study by Harvard University of malpractice claims in New York State⁴ found that only 2 percent of negligent injuries resulted in a claim and that only 17 percent of claims involved a negligent injury.

We do know that providers, patients, and policymakers focus at regular intervals on reforming the medical liability system,⁵ and that medical liability reforms are often adopted after periods when there are sudden increases in medical liability insurance premiums and when providers have a difficult time purchasing coverage.

In order to address these three disputed limitations of the current medical liability system—costs, patient safety, and administrative burden—a number of States have instituted partial modifications to the current tort system. Following are some examples of reforms that have been proposed—and implemented, in some cases—to address these concerns about the medical liability system.

Some Examples of Medical Liability Reforms

Full disclosure/early offer programs. Currently, a number of health systems and medical liability insurers operate programs involving the full disclosure of medical errors combined with early offers of compensation.⁶ Although full disclosure programs vary considerably, the primary focus is to disclose information to the patient about the occurrence of an error. This information generally includes a careful explanation of what occurred and why it occurred as well as information about how the institution plans to prevent a reoccurrence of such an error. Where appropriate, in many of these programs, the disclosure is accompanied by an "apology," and if it is determined by the medical institution that the error occurred as a result of negligence, the medical institution will offer the patient compensation for the injuries suffered due to the event. In almost all such programs, the patient is afforded the opportunity to seek legal representation to ensure that the medical institution's offer is fair. Moreover, in an effort to support full disclosure programs that include an apology, 29 States have enacted laws that prohibit the presentation of an apology in a State court following the occurrence of an unanticipated outcome.⁷ In 2005, then-Senator Hillary Clinton and then-Senator Barack Obama⁸ introduced the National Medical Error Disclosure and Compensation Bill (S. 1784, the MEDiC bill) to encourage health care providers to disclose medical errors and to encourage health care institutions to establish programs to avoid similar errors in the future. The primary goal of the MEDiC bill was to link the improvement of patient safety with medical liability reform by promoting confidential disclosure and ensuring that patients receive appropriate compensation. MEDiC shared some of the features that States and health systems have implemented in full disclosure models, including prohibiting using apologies against providers in future litigation. Senators Baucus and Enzi's Fair and Reliable Medical Justice Act in the 109^th Congress also included an early disclosure and compensation model.

In 2001, the Joint Commission adopted a policy that required hospitals to inform patients about when care resulted in harm, and today, the vast majority of hospitals have adopted a disclosure policy.⁹ In addition, 21 States have passed legislation that mandates reporting of some medical errors and adverse events.¹⁰ Pennsylvania was the first State to enact such legislation in its 2002 disclosure law, which mandates that medical facilities provide written notification to patients affected by serious adverse events.¹¹ Nevertheless, some question how comprehensive the data on adverse events reported to States may be because of concern that data collected pursuant to these laws might be used in malpractice litigation.¹²
Certificate of merit. Certificate of merit programs are aimed at stopping malpractice claims in their early stages. Under such a program, plaintiffs are required to file a declaration that the plaintiff received substandard care and that the care was likely the cause of the plaintiff's injuries. While the content of the certificate differs from State to State, most States require the plaintiff to provide an affidavit that the case has been reviewed by a medical expert and that the expert believes there is a basis for the claim.¹³ As of 2009, 25 States required certificates of merit in medical malpractice suits.^14,15 Illinois, for example, requires a medical malpractice plaintiff to file an affidavit declaring that at least one health professional believes the case is reasonably meritorious.¹⁶ In Florida, a plaintiff must submit a medical expert's written opinion that the defendant was negligent and that the negligence was the cause of the plaintiff's injury.¹⁷ Florida's certificate of merit program also applies to the defendant; if a defendant rejects a claim, the defendant must submit the written opinion of a medical expert that there is a lack of reasonable grounds for a medical malpractice suit.¹⁸
Caps on damage awards, periodic interim payment rules, joint and several liability reform, and collateral source rule reform.^19,20,21 Caps on damage awards limit damage payments in malpractice cases. Periodic interim payment initiatives permit malpractice claims to be paid over a period of time instead of at a single time. Joint and several liability reform laws eliminate or weaken the joint and several liability principle that permits defendants to pay only according to their level of fault (the common rule of joint and several liability calls for losing defendants to pay all the damage despite their level of fault). Similarly, the collateral source offset rule permits total damages payable in a malpractice tort to be reduced by all or part of the amount received by other (collateral) sources of payment. For example, a defendant may receive funds from a medical insurer to offset the cost of medical treatment necessitated as a result of medical negligence, and in States without laws that modify the collateral source rule, the plaintiff may receive funds to offset the cost of medical treatment from the defendant even though these costs had already been paid by a medical insurer. These initiatives are commonly described as "tort reform" mechanisms, which address the manner in which individual plaintiffs can seek compensation through courts.

For example, in 2006 there were 26 States (Alaska, California, Colorado, Hawaii, Idaho, Indiana, Illinois, Kansas, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, South Dakota, Texas, Utah, Virginia, West Virginia, and Wisconsin) that had some type of cap on non-economic damages or total damages. Moreover, 16 States have laws limiting attorney fees, 11 States have laws limiting the collateral source rule, and 31 States have some rule that addresses periodic interim payments.²²
Screening panels. Another reform mechanism charges pre-trial panels staffed by medical experts to review potential liability cases before they proceed to court. The Maine Legislature established the pre-trial screening program more than 20 years ago to encourage the early resolution of claims and the withdrawal of unmeritorious claims through the use of ²³ mandatory pre-litigation screening panels. In Maine, the panel has no independent judicial authority, cannot enter a final judgment, and once a claim moves into court, the panel's decisions have no precedential value.²⁴ Today, approximately 20 States have pre-trial litigation screening panels (also referred to as pre-litigation review panels), and supporters maintain that this mechanism is successful in reducing frivolous lawsuits and lowering malpractice insurance rates.²⁵
Health courts. Health courts represent a structural adaptation of the established medical malpractice system in which compensation decisions are based on an "avoidability" standard rather than a negligence standard and compensation is determined by specially trained judges. The Florida Neurological Injury Compensation Association and the Virginia Birth-Related Injury Compensation Program are two examples of health courts established in the late 1980s to compensate parents of children who suffer brain or spinal injuries at birth. Participation in these programs is voluntary and only affects parents who seek care from a provider who has opted to join the program. Despite some success, as documented by the U.S. Government Accountability Office (1992),²⁶ these administrative compensation programs are rare ventures that have not been duplicated in any other State.

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III. The Impact of Reforms on Costs and Patient Safety

This section looks at available research on the impact of some medical liability reforms on costs and patient safety. Although there are a number of studies that evaluate the impact of tort reforms, there are few studies of the impact of other types of liability reforms on costs. Moreover, the studies of the impact of tort reforms on health care costs have significant limitations. Specifically, these studies frequently compare the experience of States that have adopted a specific reform to those that have not, though there is evidence that States that adopt tort reforms differ systematically from States that do not adopt such reforms.²⁷ Because it is difficult to isolate the impact of tort reforms from the impact of other State-specific characteristics, there are questions about the validity of these studies.

There is little evidence about the impact of any type of reform on patient safety for several reasons, most notably because statistics on medical errors are rarely accessible to researchers. Some observers have expressed concerns that only a small portion of medical errors are reported and disclosed to patients.

Impact of Reforms on Costs

There is little information about the impact of full disclosure programs on costs, in part because there are relatively few such programs and few of these have been carefully evaluated. Nonetheless, evidence from the few programs that have been implemented suggests that these reforms may reduce the number of claims filed and the amount of malpractice rewards.

For example, in 1987, the Veterans Affairs (VA) Hospital in Lexington, Kentucky established a full disclosure, early offer program.²⁸ This program reduced liability costs, and the Lexington, Kentucky VA Hospital is in the bottom quartile of 36 similarly sized hospitals in terms of malpractice payments per year and in the bottom sixth of these hospitals in terms of the average liability payment per claim. In 2005, the Lexington Kentucky VA Hospital had an average cost per claim of $15,000, while the average cost per claim at other VA hospitals was $98,000 per claim.

Three years after the VA hospital in Lexington, Kentucky established its full disclosure program, a similar program was established at the University of Michigan Health System. This program is closely associated with a quality enhancement program referred to as the University of Michigan of Patient Safety Enhancement Program. The program uses the data collected pursuant to the full disclosure program to study medical errors and develop approaches to reducing the likelihood of their occurrence in the future. The full disclosure program at the University of Michigan Health System has resulted in a substantial decrease in the number of new claims against the system (the number of new claims was 136 in 1999, 122 in 2000, 121 in 2001, 88 in 2002, 81 in 2003, 91 in 2004, 85 in 2005 and 61 in 2006)²⁹. These reductions occurred even though the volume of patients over this time period increased. And, as a consequence of these events, the average litigation cost per claim declined by more than 50 percent over this time period, and annual litigation costs fell about $3 million per year in 2001 to $1 million a year in 2005.³⁰

Another full disclosure program adopted by COPIC Insurance of Colorado encourages physicians to sign up for this voluntary full disclosure program, in which providers are encouraged to inform both COPIC and the patient in a timely manner when an error has occurred. COPIC's full disclosure program has reduced the number of formal claims against participating physicians and has reduced indemnity payments made by COPIC Insurance Company to patients.³¹

In 2006, the University of Illinois Medical Center at Chicago established a full disclosure program that has seen similar decreases in litigation as reported in other disclosure programs.³² The average number of lawsuits filed each year has dropped 40 percent compared to the 5 year time period before implementation of the full disclosure program.

A number of studies examine the impact of tort reforms such as caps on damage awards, periodic interim payment rules, joint and several liability modifications, collateral source rule reforms, and the abolition of punitive damages on the frequency of malpractice claims and the size of the awards.³³ The primary focus of these initiatives is on decreasing the direct and indirect costs of the medical liability system. This report defines direct costs as the cost of malpractice awards, all legal costs associated with the claims, and the administrative costs borne by medical malpractice insurers. Indirect costs of our medical liability system include any cost of health services provided by health care providers solely to reduce their probability of a patient filing a medical malpractice claim, which is often called "defensive medicine." Although some practitioners and experts believe that the most costly feature of our current tort system for medical injuries is its promotion of "defensive medicine," studies attempting to measure its scope and extent have produced widely varying estimates.^34,35,36,37

Although there are studies that support the finding that tort reforms affect malpractice costs, it is important to note at the outset the limitations of these studies. In particular, a 2006 Congressional Budget Office study noted that such studies are unable to ascertain whether changes in costs are a result of a specific tort reform or are a result of some other change in the State. Furthermore, these studies are unable to ascertain whether a change in cost is attributable to a specific tort reform or is simply a continuation of a previous trend within the State.

With these limitations in mind, we will review a few of these findings (for a similar review of the literature, see Congressional Budget Office (2009).³⁸ Some studies have shown that tort reform laws that limit payments in malpractice cases lower premiums.^39,40,41,42 For example, Zuckerman, Bovbjerg, and Sloan demonstrated that physicians in States with caps on damages in malpractice cases experience lower premiums than physicians in States without such laws,⁴³ and in a more recent study, Avraham and colleagues⁴⁴ found that caps on non-economic damages reduced health insurance premiums between 1 percent and 2 percent. The authors in the latter study relied on State-level variation in the timing of this type of reform and on health insurance premium data for several health plans between 1998 and 2006.

Although there is evidence that tort reforms affect the frequency and severity of malpractice awards, there is less evidence to support the finding of a 1996 study by Kessler and McClellan that tort reforms lower health care spending. In this study, the authors found that health care expenditures for Medicare acute myocardial infarction patients in States with a law directly limiting damage payments were 5.3 percent lower for similar patients in States without such laws; the corresponding figure for ischemic heart disease patients was 9 percent.⁴⁵ However, the 2006 study of the impact of medical malpractice tort reform on health care spending by the Congressional Budget Office⁴⁶ using State data on health care spending between 1980 and 2003 found that capping non-economic damages reduced health care spending per capita but that eliminating joint and several liability increased health care spending per capita.

Although there is not much information on the impact of other alternative reforms such as certificates of merit, pre-trial screening panels, and health courts on costs, there is limited evidence that pre-trial screening panels may reduce malpractice insurance rates. A 2008 study conducted by an actuarial firm for the American Medical Association concluded that pre-trial screening panels reduced malpractice premiums by 20 percent.⁴⁷ Anecdotally, the Vermont Medical Society noted that Maine has malpractice premium insurance rates 30 percent lower than Vermont and that Maine has had a mandatory screening process for more than 25 years.⁴⁸ Clearly, the aforementioned observations provide weak support for the conclusion that pre-trial screening panels reduce malpractice insurance rates, and this is why more research is needed.

Impact of Reforms on Patient Safety

The 1999 Institute of Medicine report, "To Err is Human: Building a Safe Health Care System," found that between 44,000 and 98,000 Americans die each year as a result of medical errors.⁴⁹ Even though not all of these errors are the result of negligence and not all of these errors could have been readily avoided, there is widespread agreement among experts in patient safety that there is still room for improvement.

Patient safety is one of the primary goals of reform efforts that focus on programs that promote full disclosure, early offers, and the collection and analyses of the root causes of medical errors. Though no rigorous evaluations have been conducted to evaluate the impact of full disclosure/early offer programs on patient safety, the University of Michigan Health Systems' experience provides a promising model for future study.^{50, 51}

More research is needed to understand the relationship between other reforms (such as certificates of merit, and pre-trial screening panels) and patient safety. Current evidence of these mechanisms' impact on patient safety relates to the relationship of these programs to the frequency and severity of medical claims.

In addition, evidence regarding the impact of caps on damage awards, joint and several liability modifications, collateral source offset rules, or limits on attorneys' fees on patient safety is inconclusive. Furthermore, while some studies indicated no effects from damage caps on patient outcomes, others found slightly negative effects (for a recent review, see Congressional Budget Office (2009)).⁵² For example, Baicker and colleagues examined the impact of caps on damages on care received by the elderly and found that caps had no affect on mortality, ⁵³ while Currie and McLeod found that caps on damages were related to increased complications for maternity patients.⁵⁴ Moreover, Sloan and Shadle using data from the National Long-Term Care Survey and Medicare claims from 1985-2000 found that neither direct nor indirect tort reforms had any effect on 1-year survival rates.⁵⁵ Lakdawalla and Seabury⁵⁶, using the RAND Jury Verdict database and Medicare claims data from 1985-2000, found that lower malpractice costs were related to higher mortality rates and concluded that a cost-benefit analysis would lead one to reject loosening current liability rules.

Some observers have also questioned whether reforms that reduce physician malpractice liability would create a moral hazard problem by giving doctors less incentives to prevent medical errors. Data suggests that experience rating might possibly reduce medical errors by placing more liability on the few physicians responsible for most of the malpractice claim.57 More research on this topic is warranted in the realm of patient safety.

Finally, it is worth noting the difficulty of evaluating these reforms' effect on another concern about our current medical liability system—that many individuals with legitimate claims do not have access to the courts. In fact, according to Studdert, Yang, and Mello, most research has focused on "receivers rather than seekers of compensation. In theory, caps may influence attorneys' willingness to take cases that involve paltry economic losses,"⁵⁸ suggesting that injured parties without potentially lucrative cases are at a disadvantage in securing legal counsel. Thus, it is inherently difficult to identify individuals whose needs are not met because of the unintended consequences of caps and other reforms.

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IV. Final Remarks

As discussed in the preceding pages, our medical liability system sets out to compensate patients injured as a result of medical treatment and to ensure and promote patient safety. Some argue that our medical liability system is neither sensitive nor specific regarding the goal of fair compensation because it rarely compensates patients who are harmed due to poor care. In addition, others argue that the medical liability system contributes to liability premiums and health care costs.

Future programs and initiatives designed to optimize promising practices that address both ensuring and improving patient safety as well as reducing health care costs will likely help to find more effective solutions to medical liability concerns. A literature review has revealed that there is little solid evidence about the impact of medical liability reforms on the cost of care and even less information about the impact of reforms on patient safety. Now is an opportune time to experiment with alternative approaches to the medical liability system that deliberately focus on patient safety and health care costs as a centerpiece of their design. Likewise, rigorous evaluation of promising models is necessary to understand their impact on costs, patient safety, and the interplay of these two factors.

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