# Presentation: 138324

## Reforming Medical Liability

- Conventional Approaches and Beyond

- Randall R. Bovbjerg, J.D.
- (Bó - berg)
- The Urban Institute** ****†**

- † Standard disclaimer applies

## Slide 2

## Who’s Missing?

- Patients
- Payers

## “Road Map” of Talk

- A bit of history
- Problems today: insurance “crisis,” safety
- Causes and implications
- Conventional solutions, mainly tort reform
- More fundamental changes to improve compensation and safety

## A Bit of History

- Series of crises that have changed industry
- Two lesser known crises in 50s & 60s: rising claims, then better rating, medical society plans
- First national crisis in mid-70s: higher claims, availability problems, mutuals enter, tort reform
- Second in mid-80s: higher claims, affordability, other lines too, shift to claims-made, tort reform
- Third from Y2K: described below
- Regulation by states ― solvency & rates
- exception: Federal Risk Retention Act ‘81, ‘86.

## Latest Insurance Crisis

- Insurer withdrawal, retrenchment
- Price increases and selective underwriting; varies by state
- Big for some MD’s, can’t pass through
- Limited access problems ― high-risk providers in high-risk regions, perhaps long-term shifts

## Trends in Physician Premiums

- Source: CBO analysis of Med Liabil Mon surveys

## Factors Underlying Rise

- Lawyers say it’s all insurance cycle, interest rates and insurer misbehavior
- Doctors and insurers agree there’s cycle, but
- trend in claims payouts went up in mid-90s
- in some states, claims up
- reinsurance up
- Both partly right, doctors/insurers more

## Crises: Cycles & Costs

## Problems & Implications

- Main cost of malpractice insurance is malpractice claims [Duh]
- Interest earnings have effect because they’re a negative cost but don’t drive cycle
- Crisis seems to be abating, not “normalcy”
- Big differences across States, even within State

## National Malpractice Costs

**Total**

**Physicians**

- Source: Tillinghast (2004)

- $ billions

## Potential Solutions

- Today’s top three: tort reform, tort reform, and tort reform
- Insurance market interventions, other near-term reforms
- Broader reforms ― replace part or all of current liability system

**Notes:**
Evidence on claims impact better than on premiums, premiums very hard to analyze

Press releases may disagree, but political posturing of both sides shows they agree -- lawyers very against caps, docs very pro

Why insurers favor caps that’ll cut their premiums -- GM doesn’t lobby for lower car prices?  PREDICTABILITY

## Conventional “Tort Reforms”

- Goals: insurance availability, affordability
- Legal cutbacks
- Caps on awards, shorter times to sue, no double recovery, cut attorney fees, etc.
- Work to cut claims costs, also premiums; calms insurance markets (somewhat)
- As “takeaways,” face challenges in court
- Improve insurance performance
- Sometimes add quality or safety regulation

## Caps Are Centerpiece

- Design  total award, only “pain and suffering”
- Doctors  only caps are more than “band-aids”
- Lawyers  unconstitutional, the worst hurt are hurt worst
- Insurers  like caps, trade premium volume for claims predictability
- Scorecard  in about 1/2 of States, push for national

## California MICRA & Federal Bills

**Other provisions**
- Periodic payments
- Sliding scale for attorney fees
- Multiple defendants pay by percentage of responsibility
- CA
- 90-day notice of claim, physician discipline
- Federal
- Punitive damage limits, drug/device provisions, asbestos reforms, class action reform

**“****Big three” **
- $250K cap on pain & suffering
- Collateral source offset
- Shorter time to sue

- MICRA = Medical Injury Compensation Reform Act of 1975
- Federal, HR 4600 & successors, administration proposals
- N.B. Federal bill would alter traditional Federal/State roles in this field

## Insurance Changes ― Public

- Regulation/antitrust (lawyers’ preferences)
- State provision of insurance
- Insurer of last resort ― Joint Underwriting Association
- High-end risk ― Patient Compensation Fund or reinsurance
- Some subsidies of physician premiums
- Old NY requirement that hospitals provide top layer
- PA for catastrophic coverage
- MD subsidy ― ended HMOs exemption from premium tax

## Insurance Changes - Private

- Alternative Risk Mechanisms (ARMs)
- Mainly hospitals, seem more common this crisis
- Hospital-physician collaboration
- May subsidize rates ― stark issues
- “Channeling” programs at academic medical centers
- Broader hospital-physician collaboration could:
- Create new risk pool, with positive attributes
- Save on investigation, defense
- Prompt new mode of cooperation on safety
- Multistate arrangements?

## What’s Missing?

- More even-handedness, not just takeaways
- Major underperformance of law’s 3 key goals:
- Compensation
- Deterrence
- Justice
- These are persistent problems, not crises
- Hereafter, possible alternatives to CA’s MICRA and proposed national mega-MICRA

## Key Goal 1: Fairer Compensation

***“******It’s a treasure map”***

## Key Goal 2: Better “Signals”/Safety

***“******It’s from my attorney.”***

## Five Alternatives

- Akin to conventional reform
- More even-handed liability reforms
- Broader reforms, aim at all medical injuries
- Radical disclosure, full “transparency”
- Reward (only) disclosure with tort reform
- Trial run for administrative compensation system
- Create advance lists of “avoidable classes of events”

## 1. More Even-Handedness

- Within current system
- Improve liability process, not just prospects for one party or other
- Address specific problems
- Unpredictable/inaccurate liability determinations
- Unpredictable payouts, not just intangibles but also future “economic” losses, discount rates

## Elements of Improvement

- Expert witnesses
- Not just “tighter” qualifications (e.g., <20% of income) but also availability, objectivity
- Evidence-based medicine?
- Caps other than flat, one-size-fits-all
- “Stacked” caps, sliding scales, or ranges
- Routinize elements of future loss determinations
- Improve legal performance
- More active judicial management, tracking of data (timeliness, costs, awards, lawyers’ performance)

## Why Do More Than This?

- Tap into new capabilities in “patient safety”
- Fix the problem, not the blame
- Regulation, punishment can help, but fall short
- “Surface” problems, analyze, change processes, monitor, repeat
- Early successes in medicine
- BUT fear of blame and liability keeps problems hidden (and claims, too)

## 2. Greater Transparency

- More “transparent” disclosure to patients
- Risks before the fact, unanticipated outcomes after
- Remediation, settlement offer
- Motivations
- Treat patients ethically
- Improve trust, cut litigiousness
- Ease providers’ malpractice fears
- Facilitate systemic improvements

## Greater Transparency, cont’d

- Many saying this should happen, including AMA, Joint Commission on Accreditation of Healthcare Organization
- Actual practice less clear, many say they do
- May be good business/liability strategy
- Some indication from VA that it’s fiscally feasible
- Increasingly becoming conventional wisdom
- May help safety analysis, too
- Fears may linger

## 3. Early-Offer Reform

- Defendants promptly offering to pay future out-of-pocket losses cannot be sued for pain and suffering
- Pluses
- Rewards fast disclosure, potentially increases ##
- Much faster and lower overhead
- Assures funds for future needs
- No complex changes to law or liability insurance
- Minuses
- May be “gamed” ― only offer for big cases
- Lawyers hate, insurers uneasy about ongoing risk

## New Systems

***“******We would like to request a change in venue to an entirely different legal system.”***

## 4. Administrative Compensation

- Cover preventable injuries (not full “no fault”), control payouts
- Similar to Workers Compensation, other nations
- Pluses
- Fiscal incentives for safety practices, data
- High speed, low overhead, more consistency
- Minuses
- Hard to legislate as good package ― cf. no-fault auto
- Still dependent on claims brought by patients
- Not well-grounded in operations of medical entities

## Admin Comp, cont’d

- Evidence from VA and FL birth-related neurological injury compensation
- Successes:
- feasible to run program with one listed event
- maintained access to obstetrician liability insurance
- cut OBs’ premiums 2.5 times below trend
- settles in 1/3 time, 1/5 the administrative costs
- comparable compensation, satisfaction
- But:
- too small, some variability in application
- political and legal attacks

## 5. ACEs & Provider Groups

- List preventable injuries in advance as ACEs (avoidable classes of events)
- Pay structured damages automatically, like disability insurance, without liability process
- Resolve disputes, other cases through nonjudicial process

## ACEs, cont’d

- Implement through private contract
- provider-patient contracts
- employer/health plan-enrollee contract (akin to Kaiser mandated arbitration but with new rules)
- potential for choice at time of service, PPO model
- Nature of oversight an open issue (sanctioned by State, in IOM model)
- Could also be used to promote case-finding, resolution under other reforms

## ACEs, cont’d

- Evidence from research
- listings are feasible
- would cover a lot of current system (1/2 hospital OB cases but 3/4 of $$)
- Potential is great but unproven; need demonstration in willing locale

## Need State Experimentation

- Proposed November 2002 in IOM report to DHHS
- Nonjudicial, patient-centered, safety-friendly new injury resolution system
- Federal liability reinsurance to encourage State action (cover very high level of losses)
- State legislation to try one of two approaches (akin to 4 & 5 above)

## Summing Up

- In short term, be more even handed
- In medium and long run, try more promising approaches, support demos
- Key standards throughout
- Fairer compensation
- Better safety

## Final Thought

- Ideally, caregivers would tell patients and families when problems occur. Reasonable compensation would follow for avoidable injuries, and safety management would constantly be informed by experience. Patients treated decently are mainly grateful, not vengeful. Practitioners need to worry more about patient outcomes than legal outcomes, and systems of accountability need to make it easier for caregivers and medical institutions to do the right thing.

## End

- Questions

## Sliding Scale in Lieu of Cap

**$$$**

**$**

**Minor**

**Severe**

**Level of injury**

**Minor**

**Severe**

- “Pain & Suffering” Reform

**“****Traditional” Flat Cap**

**Sliding Scale**

*Source:  Author's schematic*