March 2003
The Crisis of Tort Reform — Let's Blame the Lawyers
by Dick Manning, WSBA President
There's an all-out attack raging in Olympia against the victims of neglectful health-care providers under the guise of softening that industry's medical-malpractice insurance premiums. In the Legislature, it's called tort reform. If the Liability Reform Coalition (LRC) has its way, victims of medical negligence will be victimized twice.
Normally I tend to keep my mouth shut about these things (and some who read this will wish I had), but the cumulative impact of the tort reform being proposed is so onerous and unfair that I must speak out. These are my personal views (I have no vote except to break a tie) and do not necessarily reflect the beliefs of the WSBA Board of Governors, who, at the time of writing this column (January 2003), have not yet decided whether to take a position. But all who read this should be aware of what is happening to the victims and the lawyers who represent them.
The Proposed Legislation and Constitutional Amendment
Senate Bill 5209 (related to actions arising out of health-care professional negligence) would:
• impose a cap of $250,000 on noneconomic damages;
• limit contingent fees of claimants' lawyers on a sliding-scale basis;
• require a 90-day advance claim notice to the health-care provider before filing an action;
• establish a one-year statute of limitations and a three-year statute of repose (no action allowed after three years from the negligent act);
• eliminate the collateral source rule including contractual reimbursement out of a victim's recovery;
• eliminate joint and several liability, including situations where the victim is totally fault-free;
• require the same burden of proof as in fraud cases — "clear, cogent and convincing evidence";
• allow health-care providers to require mandatory arbitration of claims (providers would control the process of selecting arbitrators); and
• provide for the court to require awards above $50,000 to be paid in periodic payments, which would terminate upon the victim's death.
Senate Joint Resolution 8207 would refer to the voters an amendment to the constitution which would allow the Legislature to impose caps on noneconomic damages in all personal-injury and death actions. Practically speaking, the effect of these proposals is to eliminate most medical malpractice actions. This is because the costs (not attorneys' fees) of marshalling medical evidence, witnesses and experts is so expensive (and not reimbursable to a successful victim), there will be little incentive to bring these actions except in cases of extreme economic loss. The LRC knows this, and presumably that is why these legislative proposals are written in such a way as to dismantle the justice system a piece at a time without a total legislative prohibition against these kinds of actions. With the LRC's approach, one has to ask: How will health-care providers be offered more incentive to avoid malpractice, now that the barriers to it are being lowered?
Those seeking tort reform blame high medical-malpractice insurance premiums on high jury verdicts. And who is it who invariably files a demand for a jury? Ask your insurance-defense attorney colleagues; they will candidly admit that with rare exceptions, the defense does it every time.
The Causes
Historically, tort-reform legislation seems to arise when insurance companies' investment portfolio income has gone into steep decline, an event usually preceded by expansive marketing efforts marked by cutthroat competition, unrealistically low premiums, and loose underwriting. History repeats itself, and this cycle of boom and bust has been endemic throughout the entire liability, property and casualty insurance industry. Greg Walsh and Peter Hammett, partners at Parker, Smith & Feek, one of the Northwest's largest and most respected insurance brokerage houses, confirm this in their analysis of insurance industry data. As stated in one of their timely publications:
"The liability insurance crisis of the mid-1980's changed the rules of the game. Change came quickly, without warning and was very painful for most insurance buyers. Once stabilized, the insurance industry again became a 'buyer's market' with relaxed underwriting standards, broadened coverage and highly competitive pricing in virtually all industry segments and coverage lines continuing through the 1990's".
Walsh and Hammett point out that the industry as a whole generally operates with underwriting losses, which are offset by investment income. I have observed that, historically, when securities markets fall and crisis sets in, insurance companies blame lawyers (as they did in the 1980s). To be sure, I am sympathetic to physicians, hospitals and other health-care providers who are caught in the squeeze between rising costs of medical care (better than 25 percent attributable to paperwork administration), on the one hand, and diminishing reimbursements for patient treatment by Medicare, Medicaid and health-care insurance companies, on the other. (It's interesting to note that in Washington state the Medicare reimbursement rate to providers for treatment of a specific illness is only a little more than half the reimbursement amount for the same patient treatment in Washington, D.C.) Most of the physicians I know are working harder and longer hours to keep up with costs. They need help, and all of us — health-care professionals, legislators, lawyers, the pharmaceutical industry and others — should be looking at solutions which address the real causes of rising health-care costs.
Independent Research and Surveys — Lawyers Are Not the Problem
What and who is driving tort reform in this state? It doesn't appear to be litigation. The most recent statistics (released by malpractice insurance companies in this state for 2001) indicate:
• More than 400 malpractice actions were filed in 2001.
• Out of all actions filed, only seven verdicts or settlements involved $1 million dollars or more.
• Punitive damages are not allowed in this state.
According to a study performed in 1998 by Ostrom & Kauder for the National Center for State Courts (unaffiliated with any trial-lawyer associations and nationally recognized as a valuable resource by all courts throughout the country), in medical malpractice actions:
• Plaintiffs prevailed only 23.4 percent of the time.
• The median value of those awards (including any punitive damages) was $254,000.
• In states that allow punitive damages, malpractice cases were only one percent of all punitive awards.
So it would seem that litigation awards (where victims have proven their damages in a court of law) are not driving tort reform. Nor does it appear that the vast majority of physicians are driving tort reform. On January 22, 2003, The Seattle Times released the results of a national survey published in The Journal of the American Medical Association. The survey showed the percentage of physicians somewhat or very dissatisfied with their profession because of increasing insurance premiums, decreasing income or diminishing control. The survey, conducted by Harvard Medical School, reached 12,000 general-practice and specialist physicians in 60 areas of the country. An in-depth study focused on 12 cities and included 500 Seattle physicians. Only 14.8 percent of the Seattle physicians expressed dissatisfaction, a slight decrease from a 1997 survey. Nationally, about 18 percent of all physicians expressed dissatisfaction, about the same percentage as in the 1997 survey, which surprised the researchers. The largest single source of dissatisfaction was "clinical autonomy" and "managed care plans." Interestingly, physicians tended to be happier when they owned their own practices. So if most physicians are satisfied, who are these doctors in Olympia driving tort reform?
Dr. Bruce Landon, lead author of the Harvard Medical School survey report, provides a clue: "The study, which surveyed 500 doctors in the Seattle metropolitan area, was a more accurate measure of doctor satisfaction than counting doctors who show up at meetings or who answer surveys that specifically focus on problems." Using the latter methods, he said, "…you're more likely to hear from the disgruntled ones." So it isn't the vast majority of physicians. But they do have something to complain about: the Office of the Insurance Commissioner reports that 5.1 percent of physicians account for 54 percent of malpractice settlements and awards.
Could it be the hospitals in this state are pushing for reform? According to a report released by the State Department of Health (published in The Seattle Times on February 2, 2003), net operating income in Washington's primarily not-for-profit hospitals rose to $225 million in 2002 (for-profit hospitals call this net operating profit). This was an increase of 66 percent from 2001, representing an operating margin of 2.8 percent on gross revenue. Ideally, the industry benchmark is five percent. Most of this increase was in urban hospitals, with many rural hospitals having losses. But the trend — achieved through consolidations and cuts in unprofitable services — is a good one. So I ask again, is it really hospitals that are pursuing tort reform?
Insurance Premiums Will Continue to Rise with Damage Caps
Do caps on malpractice awards reduce premiums or at least keep them from increasing? Ask the doctors. Ask the insurance companies in California, Florida, Missouri, Nevada and West Virginia, states that have damage caps (some of these states have caps on the total award). California premiums increased 190 percent after its Legislature adopted a $250,000 cap on noneconomic damages in 1976. Of course, you don't hear a lot about California caps, because punitive damages are allowed there and are routinely sought and negotiated or litigated as part of a claim. The fact is that no premiums have ever been reduced and in most instances have been spiraling ever upward.
LRC — Show Us Valid Data That Victims Are to Blame
So we've come full circle: What and who is driving tort reform? And why are lawyers being demonized by the LRC media and lobbying efforts? I'm reminded of a quote from Shakespeare's Henry VI: "The first thing we do, let's kill all the lawyers," spoken by Shakespeare's character Dick the Butcher in plotting with the Jack Cade gang for the violent overthrow of the government. Is the LRC's motive to create a special, privileged class in the holy name of health care? And is the only way to accomplish this to get rid of all the lawyers? Is this effort representative of the belief of the vast majority of health-care professionals? I challenge the LRC for answers backed by valid data to the surveys and research reported here — and from sources not identified with the LRC and its affiliated and correspondent constituencies.
Putting the Shoe on the Other Foot
Besides health-care providers and insurance companies, the LRC is composed of companies engaged in every kind of business. The list includes Boeing; CPAs and Realtors; energy, construction, timber, architecture and engineering firms; and a variety of manufacturers. So should each of these businesses have their fees or prices capped and subject to a sliding scale? Should each be required to prove any claim by clear, cogent and convincing evidence? Should joint and several liability be eliminated in any recovery by such companies? Should any of their claims be limited to a one-year statute of limitations? I can go on, but do I need to?
Solutions
There are solutions. But there is no one magic cure. Weeding out the relatively few health-care providers who give rise to most of the malpractice cases would be one. There should be legislation (there is in this state) allowing tortfeasors to express sincere apologies without such being admitted into evidence as an admission against interest. When a Veterans Administration hospital in West Virginia instituted such a policy and offered prompt remediation/compensation, total litigation costs decreased dramatically.
Another solution would be to encourage the production of generic drugs to bring about significant decreases in the retail prices of prescription drugs, which are greatly driving up increases in overall health-care costs. Collaborative lawyering (see Bar News President's Corner, February 2003) in malpractice cases could significantly lower litigation costs for all parties.
State regulation of insurance companies could require that, while earning a reasonable profit, their financial records are subject to audit and rate regulation so that underwriting losses are minimized. This could smooth out the insurance-industry boom and bust that results in cyclical spiking of insurance premiums (and which is seized upon by the insurance industry to call for tort reform). California has recently adopted legislation to do just that.
To err is human. And after all, there is no medical malpractice award without medical negligence. Surely good minds (with good hearts) can find ways to provide relief to health-care providers without taking away the rights of an isolated group of victims. That's the least we can and should do. And it can be done by a coalition of satisfied physicians, other health-care providers, and federal and state agencies involved in the funding and delivery of health-care services that are interested in the real causes of rising insurance premiums and health-care costs. Get on the Internet (http://dfind.leg.wa.gov/dfinder.cfm) and let your legislator know how you feel!
Dick Manning welcomes comment. He can be reached at jmb@seanet.com; fax 206-624-3865; or telephone 206-623-6302.
