Facts versus fiction in the debate over medical liability reform

By Texas Medical Liability Trust

Much of the discussion about the health care system in the U.S. has been centered on managed care and the logistics of health care delivery. Medical liability, as a salient health care issue, has been off the radar screen for the last several years. But now that we find ourselves neck-deep in a medical liability crisis severe enough to affect patient access, the press and public are starting to take notice. In newspapers and on the local news, physicians are talking about how our unfettered legal system is affecting their practices and the delivery of health care.

But this increased scrutiny comes at a price. In their attempts to present balanced information, reporters will often seek out the opinions of trial lawyers and consumer advocates who espouse their own views on the subject. Among other things, these pundits claim that there is no medical liability crisis, but if there is one it has to be the result of stock market losses and mismanagement by insurance companies, not the filing of non-meritorious lawsuits. Even more alarming are their claims that medical malpractice litigation is necessary to improve the quality of health care and reduce medical errors, and that high premiums and lawsuits act to protect patients.

While everyone is entitled to an opinion, it is a little mystifying how these seemingly rational, educated people can simply throw out the facts when professing their viewpoint. It’s like someone relentlessly insisting that the sun revolves around the earth.

Actually, it’s not that mystifying. Look close enough and it becomes obvious. The fight for medical liability reform in Texas is growing ugly, as it has been in Pennsylvania and West Virginia. The plaintiff bar is waging a bloody public relations war, vilifying physicians and insurance companies alike. The facts be damned.

The only chance for success against this powerful and united opponent is to be united ourselves. We are all on the same side here, but this is a complex issue, misinformation abounds and it is easy to become sidetracked by supposition and half-truths. The following are a few facts to keep in mind about the current medical liability crisis. 

The real bottom line is medical care needs to be improved,” said a personal injury attorney in the Corpus Christi Caller-Times. While everyone can agree with this statement 100 percent, very few would agree with the assertion that malpractice litigation is necessary to ensure patient safety.

How does making physicians afraid to take emergency room call protect patient safety? How does running neurosurgeons out of the Rio Grande Valley protect patient safety? How does compelling ob/gyns to abandon obstetrics protect patient safety? Does any sane, rational person out there really believe that enacting medical liability reform will make health care less safe, that higher malpractice premiums actually improve the quality of health care? Following this logic, patients in Pennsylvania, West Virginia and Texas are safer than patients in California, which has had strong medical liability reform in place since 1975.This simply does not pass the common sense test. Common sense aside, researchers at the Stanford University Graduate School of Business found that health care liability reform lowered health care costs with no significant impact on health outcomes in states that have limited non-economic and punitive damage awards.

Our out-of-control legal system and the lawyers who flourish under it do very little to actually improve the health care system. Instead they leach off it, draining billions of dollars away from the health care system at a time when resources are scarce to begin with. Bad enough that the money is taken out of health care, but under our current system it does not even make it to the injured patients. According to the Health Care Liability Alliance, 43 cents of every malpractice premium dollar goes to patients as compensation. The remaining 57 cents goes primarily toward legal fees. This system only serves to enrich those who abuse it and who would make money off the suffering of others. 

We all remember the Institute of Medicine Report released in 1999 that claimed medical errors and accidents in hospitals caused between 44,000 and 98,000 deaths each year. While no one can disagree with the main point of the report, that hospitals should be made safer, several subsequent studies have revealed flaws in the IOM report. These studies maintain the 98,000 number is probably an overestimation, but this higher figure is thrown around a great deal by plaintiff attorneys and patient safety advocates to illustrate the need for malpractice litigation.

What these people don’t include when they quote the IOM report is that the report itself stipulates that measures be taken to make health care providers more forthcoming in discussing errors so that others can learn from them. “The focus must shift away from blaming individuals for past errors to a focus on preventing future errors by designing safety into the system. This does not mean that individuals can be careless. People must be vigilant and held responsible for their actions. But when an error occurs, blaming an individual does little to make the system safer and prevent someone else from committing the same error.”

Lawsuits do not create a safer health care environment. Instead they complicate efforts to prevent medical errors by imposing secrecy and silence, breeding fear and insecurity. Fear of litigation stifles any attempt to discuss medical errors and prevent them. If we want to seriously address patient safety, the first step should be reforming the medical liability system.

Now, let’s turn to a few myths that are circulating about the insurance industry.

It is completely baffling to witness the tenacious insistence of the plaintiff’s bar that most medical liability claims are meritorious. A trial lawyer was quoted in a news story on KGBT in Harlingen, “medical malpractice cases they say generally are frivolous. That’s just not true.”

The facts speak for themselves. TMLT routinely closes more than 85 percent of claims with no indemnity payment. In 1999, the figure was 88.9 percent; in 2000 it was 86.6 percent; in 2001 it was 89.8 percent. No indemnity means no payment was made on behalf of the physician to the patient for personal injury, loss or damage.

Increase the sample size, and the results are the same. The TMA reviewed claim data from three of the state’s largest carriers, including TMLT. For all three companies, the closed-without- indemnity rate was 82 percent in 1999 and 86 percent in 2000. 

All this means that more than 80 percent of medical liability cases can be considered non-meritorious. Insurance companies spend a majority of physicians’ premium dollars, in the form of legal expenses, court costs and staff time, defending these types of claims. In 2000, TMLT spent $26 million in the defense of non-meritorious claims. In 2001, $28 million was spent.

Crisis or bad business? Either way, tort reform won’t solve the problem

By Hartley Hampton

Getting lost in the rhetoric clouding the medical malpractice liability insurance debate is the fact that insurance premiums for all lines of insurance are rising due to the insurance industry’s poor business decisions, risky investments and a precarious economy. Additionally, both malpractice liability insurers and the failing managed care system leave good doctors carrying the burden for bad doctors.

A Wall Street Journal article from April 11, 2002, explained how all types of businesses are being charged more for insurance because of the “excesses of the 90s,” when carriers slashed rates until they were paying out an average of $1.07 for every dollar of premiums received on business coverage.

“During the bull market of the 90s, insurers could sustain these losses on underwriting because the shortfalls were more than offset by investments income the insurers earned on premiums…” the story says.

A story in The New York Times referred to the “grave miscalculation” insurance companies made. “For several years, they kept prices artificially low while competing for market share and new revenue to invest in a booming stock market.

“As the bull market surged, stock investments by these historically conservative insurers rose to 10.6 percent in 1999, up from a more typical 3 percent in 1992, said Geri Riley, an analyst at Conning & Company, an insurance research firm. That was nearly four times the percentage increase in stock market investments by the entire property and casualty insurance industry over that period.

“With the markets now in a slump, the insurers can no longer use stock market gains to subsidize low rates … A decline in investment earnings has also helped drive up the prices of automobiles and homeowners insurance.”

Bottom line: Medical malpractice carriers, like other property and casualty insurance carriers all over the country, were relying on the stock market to subsidize their price war. Like a lot of folks, they were invested too aggressively in tech stocks and in Enron. A.M. Best’s 2001 State Line Report says the St. Paul Companies lost $108 million on Enron.

The insurance industry asserts that lawsuits brought by those who have suffered or lost loves ones due to medical malpractice are responsible for the insurance dilemma and continues to lobby for restricting their rights. Yet, the American Tort Reform Association president Sherman Joyce was quoted in a July 1999 issue of Liability Week as saying, “we wouldn’t tell you or anyone that the reason to pass tort reform would be to reduce insurance rates.” Victor Schwartz, American Tort Reform Association’s general counsel, told Business Insurance that he had never, in his 30 years of advocating tort reform, claimed that restricting litigation would lower insurance rates.

The medical malpractice insurance “crisis” is not new. Similar situations surfaced in the mid-1970s and 80s when insurance companies’ profits dropped. During those years, some state legislatures were pressured by insurers to limit individual rights with assurances from the industry that the changes would control and decrease insurance rates. The truth is that because initiatives limiting patients’ rights were never designed to decrease insurance rates, rate decreases have never materialized. All that has happened is additional restrictions have been placed on the rights of those injured or even killed by medical errors and malpractice.

When California lawmakers passed severe restrictions on patients’ rights and severely capped damages, relying on the insurance industry’s promises of reduced medical liability rates. Now, 27 years later, California doctors pay 20 percent more for medical malpractice coverage than the national average. Data from the October 2001 issue of Medical Liability Monitor showed that the average medical malpractice premium is lower in states without damage caps than states with caps.

I have represented victims of medical malpractice for 25 years. Some were physicians who suffered catastrophic injuries due to medical negligence. I have also represented physicians who were sued for malpractice, when their insurance companies failed to protect their interests. I understand how painful it is for a conscientious physician to be sued by one of his patients, and how catastrophic the consequences of medical negligence can be.

Because of the direct and indirect effects of managed health care, there is an epidemic of angry patients who are upset about the way he/she or their loved one was treated by the health care system. When I pick a jury in a medical malpractice case, I always ask a potential juror what it would take for him to sue his doctor. Years ago, people expressed real reluctance. Now they say they don’t even know who their doctor is.

Nevertheless, studies in the New England Journal of Medicine and elsewhere found that only a small fraction of patients injured by medical malpractice ever file a claim. Estimates range from 2 to 10 percent and, according to data from the Texas State Board of Medical Examiners, the number of claims filed in Texas is at a four-year low. And there is a good reason for the small increase. Dr. Frank Sloan, a prominent Vanderbilt economist, studied medical malpractice litigation and wrote Winners and Losers: How Medical Malpractice Disputes are Resolved. He finds that in 80 percent of cases, payments by defendants in medical malpractice suits don’t even compensate the plaintiff for economic losses and families with the most severe losses are more likely to be under-compensated.

It is particularly telling that this litigation crisis we are hearing about began in the aftermath of the most far-reaching tort reform in the history of this state, if not the nation. The truth is, many Texans with small but valid cases of medical negligence are turned away by lawyers because their cases cannot be prosecuted economically. Medical malpractice cases often cost hundreds of thousands of dollars to develop and lawyers are extremely selective about which cases to pursue. The cases are complicated and doctors and hospitals enjoy advantages at trial that other classes of defendants do not have. The leading provider of medical malpractice insurance in Texas says that 85 percent of the claims are closed without any indemnity being paid. With claims frequency relatively flat or declining statewide, physicians might want to consider whether they have a management problem with their insurance provider.

There are common interests between our groups. For instance drug manufacturers often “point the finger” at doctors in litigation over dangerously defective drugs. This is an area in which physicians and lawyers who represent patients should be able to work together in finding a way to keep doctors out of most of these lawsuits.

Hopefully, doctors and lawyers will continue to sit down together and work on the complex issues involved in striking a balance between the rights and safety of patients, affordable and available medical malpractice insurance and risk management. 

Hartley Hampton is a partner in the Houston firm of Fibich, Hampton, Leebron & Garth and current Texas Trial Lawyers Association Legislative Chair. Mr. Hampton is a past president of the Texas Trial Lawyers Association and the Houston Trial Lawyers Association.