Impact of Legal Reforms on Medical

Malpractice Costs

September 1993

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For de by the U.S. Govemmen[ Prmtmg office

Superintendent of Documents, Mml Stop: SSOP, Washington, DC 20402-932X”

ISBN 0-16 -042097-0

Recommended Citation:

U.S. Congress, Office of the Technology Assessment, Impact of Legal Reforms on Medical

Malpractice Costs, OTA-BP-H-1 19 (Washington, DC: U.S. Government Printing Office,

October 1993).
IMPACT OF LEGAL REFORMS ON MEDICAL

MALPRACTICE COSTS

Background Paper

prepared by the

Health Program

Office of Technology Assessment

Clyde J. Behney, Assistant Director, OTA

Project Staff

Judith L. Wagner, Project Director

Defensive Medicine and the Use of Medical Technology

Jacqueline A. Corrigan, Study Director

David Klingman, Senior Analyst

Leah Wolfe, Analyst

Philip T. Polishuk, Research Assistant

September 1993

This paper was prepared for desk-top publishing by Carolyn Martin and Daniel B. Carson.

LIBRARY

OFFICE OF TECHNOLOGY ASSESSMENT

CONGRESS di ) dt. bNI L L) STATES

WASHINGTON, D. C. 2051LJ
.

Foreword

In the debate over rising health care costs, the medical malpractice liability system is

frequently cited as an area where reform could lead to substantial savings. The medical malpractice

system adds to the costs of health care directly, through physicians’ liability insurance premiums, and

possibly indirectly, through changes in physician behavior. While the direct costs of medical

malpractice arc relatively small (less than 1 percent of overall health care costs), the threat of medical

malpractice may lead physicians to order medically unnecessary tests and procedures to protect

themselves against a future lawsuit. This indirect cost of medical malpractice, commonly referred to as

“defensive medicine,” may add to overall health care costs. The cost of defensive medicine remains

unknown and is subject to much speculation because there arc no sound empirical data.

Congress is concerned about the cost of defensive medicine and requested that OTA

undertake an assessment of this problem. The results of the assessment will be published in early

1994. In the interim, this background paper provides Congress with the most recent information on

medical malpractice reforms in the States and examines whether these reforms reduce direct

malpractice costs. The impact of these reforms on the indirect costs of medical malpractice, in

particular defensive medicine, will be explored more thoroughly in the final report.

This Background Paper was prepared in response to a request by the House Committee on

Ways and Means and the Senate Committee on Labor and Human Resources. The paper was

prepared by OTA staff, but OTA gratefully acknowledges the contribution of the assessment’s advisory

panel, numerous State attorneys general, their staff, and other individuals who providcd informal

and reviewed drafts. As with all OTA documents, the final responsibility for the content of the

assessment rests with OTA.

(7+- -

Roger C. Herdman

Director

. . .

Ill
CONTENTS

Page

Executive Summary .,..00,.00 ● . . . . . . . . . . . . . . . . . . . . . ● 000..0..0. ● ..0..0.s0. .0..0...0.0 . . . . . . . . . . . . . . . . . . . . . . ..00 1

Chapter

1. Introduction: The Malpractice System and Malpractice Reform . . . . . . . . . . ● ......*..** . . . . . . . 5

Introduction ..............,,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... .....5

Background on the Malpractice System . . ....,.., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Trends in Malpractice Cost Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Impact of Malpractice on Defensive Medicine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

2. Approaches to Malpractice Reform: States’ Experience and New Ideas . . . . . . . . . . . . . . . . . 23

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........23

Overview of Malpractice Reform Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Reforms to Reduce the Frequency and Cost of Malpractice Suits .,...,,. . . . . . . . . . . . . . . . . . . . . . . 24

Alternative Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

No-Fault Medical Compensation .,,..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

New Reform Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Conclusion . . . . . . . . .,,..... . . . . . . . . . . . . . . . . . . . . . . . . . . . ,,,.,,,,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , 49

3. Impact of State Tort Reforms ● ...**....* ● *..***..*.. ● .*.....**.* .*.********* ●  .** .*.* ..*..***..** 57

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Study Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,..,,..,, . . . . . . . . . . . . . . . . . . . 57

Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71

Conclusion......., . . . . . . . . . . ..,,.... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73

Box

Page

2-A. Selected Approaches to Alternative Dispute Resolution.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Figures

Figure Page

1-1. Medical Injuries, Negligent Conduct and Malpractice Claims . . . . . . . . . . . . .. .. .. .. .. .,. ... ,.....9

1-2. National Trends in Malpractice Premiums, 1975-1986 ..,,.... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

2-1. Pretrial Screening Panels for Medical Malpractice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

2-2. Attorney Fee Limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

2-3. Collateral Source Offset Provisions for Medical Malpractice Damages . . . . . . . . . . . . . . . . . . . . 35

2-4. Caps on Damages for Medical Malpractice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

2-5. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Tables

Table Page

1-1. Annual Medical Malpractice Premiums for $1 Million Dollars of Coverage,

New Jersey. 1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

1-2. Claims Per 100 Physicians, 1980 -1984 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

1-3. Physician Malpractice Claim Frequency 1982-1987, in Minnesota.

North Dakota, South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

1-4. Annual Malpractice Claims Per 100 Physicians: National and Regional Data. . . . . . . . . . . . 16

1-5. Aggregate Premiums Paid for Malpractice Insurance

in the United States, 1985-1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2-1. Summary of State Medical Malpractice Tort Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

3-1. State Tort Reforms Examined in Six Empirical Studies on Medical

Malpractice Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

3-2. Summary of Data and Methods Used in Six Empirical Studies on Medical

Malpractice Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

3-3. Summary of Results of Six Empirical Studies on State Medical

Malpractice Reform ,....,,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66

A-1. Collateral Source Offset Provisions, by State, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

A-2. Caps on Damages and State Patient Compensation Funds, by State, 1993. . . . . . . . . . . . . . . . . 81

A-3. Periodic Payment of Awards, by State, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

A-4. Statutes of Limitation by State, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

A-5. Pretrial Screening Panels, by State, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

A-6. Attorney Fee Limits, by State, 1993......,..,,,,.,.,,............,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

A-7. Arbitration Provisions, by State, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

C-1. Results of Six Empirical Studies on the Impact of State Tort Reforms

on Medical Malpractice Claim Frequency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106

C-2. Results of Six Empirical Studies on the Impact of State Tort Reforms

on Medical Malpractice Payment per Paid Claim ,......, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

C-3, Results of Six Empirical Studies on the Impact of State Tort Reforms

on Medical Malpractice Insurance Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

APPENDIXES

Page

A. State Medical Malpractice Reforms ● .....0000 ● ...,.000., .00,,..00.. . . . . . . . . . . . . . . . . . . . . . . ● .00.. . 77

B. Constitutional Challenges to Malpractice Reforms: Implications

for Federal Reform .00..0...0 ..0.0000..0. ● .*..**.... . . . . . . . . . . . .00.....,.. ● ....00..0. ● 00.....,. 0 99

c . Results of Six Empirical Studies on State Medical Malpractice Reforms . . . . . . . . . . . . . 105

D. Acknowledgments .000.0..0. .0..0.00... . . . . . . . . . . . ..0....0.0. . . . . . . . . . . . . . . . . . . . . . . .*....,***. ● ...,.. 113

REFERENCES ....., ● . . . . . . . . . . . . . . . . . . . . . ,.00....000 .,0,......0 . . . . . . . . . . . ● . . . . . . . . . . . . . . . . . . . . . ● .*.... 119
Executive Summary

INTRODUCTION

Medical malpractice costs are increasingly being targeted in the political debate on

health care reform. The direct costs of

medical malpractice, measured by

insurance premiums paid by physicians,

hospitals, HMOs, and other providers,

account for less than 1 percent of the health

care budget. However, many physicians

and policy makers believe that a potentially

large hidden cost of the malpractice liability

system is the practice of “defensive

medicine. ” Definitions of defensive medicine

differ, but most include the practice of

ordering extra tests and procedures primarily

in response to a perceived threat of a future

medical malpractice claim.

OTA is currently studying defensive

medicine, its costs, and the potential impact

of medical malpractice reform on defensive

medicine. The final report of this study will

be published in early 1994. This background

paper reviews the medical malpractice

reforms that have been implemented in the

States and the limited evaluations of their

success in reducing three indicators of

direct malpractice costs (hereinafter referred

to as “malpractice cost indicators”):

■ Claim frequency (the number of

claims per 100 physicians);

■ Payment per paid claim (the average

dollar amount awarded to plaintiffs

for claims that result in payment);

and

w Malpractice insurance premiums.

The paper also provides a summary of

the leading new reform proposals, highlighting some of their possible strengths and

weaknesses.

Trends in Malpractice Cost Indicators

Malpractice insurance premiums, claim

frequency, and average payment per paid

claim increased rapidly in the mid-1970s

and have since followed a fluctuating and

more moderate upward path, marked by a

relatively sharp increase during the

mid- 1980s. Since 1988, premiums and

claim frequency have declined. Data on

payment per paid claim are difficult to

obtain because insurance companies hold

most of these data. (Approximately 80

percent of medical malpractice claims are

settled through private negotiations

between the physician’s insurer and the

plaintiff.) One measure of malpractice

claims payment that captures both actual and

projected damages per claim is direct

insurance losses, a measure that combines

trends in both payment per paid claim and

the probability of a claim resulting in

payment. Between 1979 and 1985, direct

insurance losses increased by 25 percent per

year and then declined by 2.7 percent

annually from 1985 and 1991. suggesting that

either mean payment per paid claim or the

probability of payment, or both, have

declined in recent years.

It is not known whether these recent

declines are part of a cycle or indicate a

secular change in the medical malpractice

environment. In addition, national averages

obscure the sometimes pronounced changes

across regions of the country and physician

specialties.

Approaches to Medical Malpractice

Reform

Over the past 20 years, almost every

State has passed some type of medical

malpractice reform. Most of the legislative

activity occurred during the mid-1970s and

mid-1980s in response to two malpractice

“crises” marked by rapid increases in

medical malpractice insurance premiums

(Bovbjerg 1989). The “crisis” during the

mid-1970s was more dramatic, because in

some States physicians found themselves

unable to obtain insurance. Most reforms

-1-
2- Impact of Legal Reforms on Medical Malpractice Costs

have had the goal of limiting the number of

malpractice suits and payments per paid

claim, in the hope that such limits would

lower insurance rates.

Reforms to limit the number of suits or

payment per paid claim include:

Shortening the statute of limitations

(i.e., the time period in which a suit

can be brought);

Limiting attorney fees;

Requiring pretrial screening of suits;

Setting specific dollar limits on

payments per paid claim (“caps on

damages”);

Requiring the plaintiff’s health or

disability insurer be the first payer

of medical and related expenses

(amending the “collateral source

rule”); and

Permitting the malpractice insurer to

pay future damages as they come

due, rather than in lump sum

(“periodic payment” of damages).

To date, reforms that aim to promote

access to the malpractice liability system by

injured patients have not been a priority,

Some recent reform proposals are designed

to increase patients’ access to the legal

system, either by expanding the scope of

injuries for which compensation will be

provided or by removing the dispute from

the courts and using alternative dispute

resolution procedures or an administrative

tribunal, With the exception of limited

no-fault programs for birth-related injuries

in Florida and Virginia, few of these

proposals have been adopted by the States

or used to any extent in medical malpractice

actions.

Finally, clinical practice guidelines

have received considerable attention as a

potential tool for determining the standard

of care in medical malpractice trials.

Maine and Minnesota have just begun

programs to use clinical practice guidelines

in medical malpractice litigation.

Impact of State Medical Malpractice

Reforms

During the past decade, a handful of

rigorous empirical studies has examined

whether the medical malpractice reforms

implemented by the States have had their

predicted effects of reducing claim

frequency, payment per paid claim, or

malpractice insurance premiums. These

studies have used multi-State data and

multiple regression analysis to assess the

specific impact of individual medical

malpractice reforms after controlling for

other factors that might be responsible for

such differences.

The one reform consistently shown to

reduce malpractice cost indicators is caps

on damages. Requiring collateral source

payments to be deducted from the

plaintiff’s malpractice award has also been

shown to reduce certain malpractice cost

indicators. Pretrial screening panels and

limiting the statute of limitations show

conflicting results. Finally, statutes that

restrict attorney fees, require periodic

payment of awards, and codify the standard

of care have not been shown to have the

intended result of reducing malpractice cost

indicators.

Although the finding that both caps on

damages and mandatory collateral source

offsets reduce certain malpractice cost

indicators is strong, one cannot conclude

that the other reforms have no impact.

Contradictory results in different studies

may reflect different models and assumptions. The failure to find an effect may

be a result of factors unrelated to the
Executive Summary -3

effectiveness of the reform. Certain reforms

have not been studied sufficiently to draw

conclusions. In addition, a number of

reforms were modest and might not be

expected to have large effects. For example,

periodic payment of awards is triggered in a

very small number of suits with large future

damages, so the savings gained by paying

awards on a periodic basis may be very

modest. Legal challenges to statutory

changes may have also delay the actual

implementation of the reform. Finally,

due to data limitations, no conclusions

can be drawn regarding the impact of

medical malpractice reform on claim

frequency.

Conclusion

Caps on damages and mandatory

collateral source offsets should reduce the

direct costs of the medical malpractice

compensation system, The studies are not

detailed enough to conclude anything about

the level of the cap necessary to achieve

this effect, but caps on noneconomic

damages alone appear to reduce direct

malpractice costs. It should be noted,

however, that these savings are likely to

come by reducing the payments per paid

claim received by a small number of most

severely injured plaintiffs.

The studies did not examine the impact

of any of the reforms on access to compensation by patients injured by negligent care.

While not addressing the access issue

directly, some State courts have found

certain medical malpractice reforms, most

notably caps on damages, to violate their

State constitutions, because they singled

out medical malpractice plaintiffs for a

reduction in their ability to recover damages.

Other kinds of injuries (e.g., those resulting

from other types of malpractice accidents)

were not covered in the laws that have been

struck down.

Analysis of the impact of most reforms

is 1imited, especially of reforms that move

malpractice disputes outside the civil

litigation system. The lack of uniform

national data on claim frequency, payment

per paid claim. and insurance premiums

limit opportunities for strong empirical

research on the potential for medical malpractice reforms to reduce malpractice costs.

Even if a given reform reduces direct

malpractice costs significantly, the direct

savings (i. e., from reductions in malpractice

premiums) would represent only a very

small portion of the national health care

budget. Medical malpractice reform can be

expected to generate significant savings in

overall health care costs only if it can be

shown that physicians order a significant

number of extra tests and procedures and

that these defensive practices are indeed

influenced by the level of malpractice claim

activity.

The impact of changes in malpractice

cost indicators on physician behavior is not

known. Although reducing malpractice

cost indicators through medical malpractice

reform might encourage physicians to limit

defensive ordering of tests and procedures,

it may also dampen whatever beneficial

effects of the medical malpractice system

has in deterring negligent medical practice.

The advisability of such changes under a new

health care payment regime--particularly

one with greater incentives to reduce

costs--is a policy issue that deserves

careful consideration.
Chapter 1

Introduction: The Malpractice System and Malpractice Reform

The

been the

INTRODUCTION

medical malpractice system has

subject of debate and reform for

many years (1 1, 149). Critics claim that the

current system costs too much and is an

inefficient and unpredictable means of compensating individuals injured by substandard

medical care. The malpractice system has

increasingly been cited as a leading culprit

i n health care cost escalation. For example, shortly before the November 1992

election, President Bush claimed that “the

malpractice . . . trial lawyers’ lawsuits . . .

are running the costs of medical care up

$25 to $50 billion” (155). If this estimate is

correct, the malpractice system (including

premiums) constitutes between 3 percent and

7 percent of total annual health care

spending. The search for cost containment

has led Federal policy makers to pursue

further reform of the malpractice system as

part of the larger effort to reform the

nation’s health care system.

Malpractice and Health Care Costs

To understand how malpractice reform

might affect health care costs, one must

examine the pathways by which the current

malpractice system influences these costs.

There are essentially two ways in which

malpractice law alters health care costs:

directly, through the costs of administering

the malpractice system; and indirectly,

through the effects of the malpractice

system on providers behavior.

The direct costs of administering the

malpractice system, including the cost of

compensating injured parties (payouts), are

borne by health care providers (and ultimately

by consumers). Providers pay for the

administration of the legal system through

malpractice insurance premiums, out-ofpocket expenses, and even time spent in

defending themselves against malpractice

suits.

The direct costs of the malpractice

system are difficult to measure. Malpractice

insurance premiums represent the costs paid

by physicians and hospitals to insurers. but

they vary from year to year for reasons that

have nothing to do with changes in the level

of malpractice claim activity. Y

Malpractice p rem i u ms increased

substantially over the past 20 years but

have stabilized since the mid-1980s. In 1991,

the total cost of medical malpractice

premiums in the United States was $4.86

billion (98). These premiums account for

only 0.66 percent of total health care

spending in the United States. 2 but they

exclude the malpractice costs of self-insured

hospitals. 3 OTA estimates that the

insurance costs of self-insured hospitals are

roughly 20 to 30 percent of total insurance

premiums. 4 Based on this estimate. the

direct cost of the malpractice system is still

less than 1 percent of total national health

care expenditures.

Some direct malpractice system costs

are not captured i n these estimates.

Excluded are health care institutions

in-house costs of attorneys whose job it is

to oversee the institutions legal affairs and

the time and personal funds physicians spend

in defending themselves against malpractice

claims. Researchers at Harvard University

surveyed physicians in New York State

about costs they bear directly when they are

caught up in malpractice litigation ( 157).

They found that doctors who had been sued

spent an average of 6 days working on the

case. Six percent of these doctors had outof-pocket expenses from retaining their own

attorney, and 2 percent paid their own

money to settle claims brought by patients.

The indirect costs of the malpractice

system result from the signals it sends to

physicians and hospitals that certain kinds

-5-
6- Impact of Legal Reforms on Medical Malpractice Costs

of behavior may be penalized. The behavior

changes that result from these signals may

either increase or decrease health care costs.

For example, if the malpractice signal tells

physicians that to reduce their malpractice

risks they must spend more time with

patients, keep more complete medical

records, or perform more diagnostic

procedures, then it may increase health care

costs. But, if these actions prevent poor

patient outcomes by making diagnosis more

efficient or patient care safer or more

effective, they may reduce subsequent

health care spending. Whether the net

effect is to raise or lower health care costs

is unknown. President Bush’s assertions,

cited above, are based on the premise that

the cost-increasing effects of the current

malpractice system far outweigh its costreducing effects.

Deterrence and Defensive Medicine

The indirect costs of malpractice stem

from a major goal of the malpractice

system: to deter doctors and other health

care providers from putting patients at

excessive risk of adverse outcomes. 5

Changes in behavior in response to the

malpractice signal may deter adverse outcomes and, in the process, raise or lower

health care costs. However, if the malpractice signal to physicians is murky,

inconsistent, or perverse, some of the

behavior change may raise health care costs

without reducing the frequency of adverse

outcomes. This portion of the indirect cost

of the malpractice system is pure waste.

Many physicians claim that the current

malpractice system encourages the practice

of defensive medicine (1 14). Typically,

the term “defensive medicine” is defined

imprecisely by those who use it, but it almost

always has a pejorative connotation, raising

images of doctors ordering unnecessary and

costly procedures, For example, as early as

1969, an official of the U.S. Department of

Health, Education and Welfare testified

before Congress: “ ... we believe that the

additional procedures being ordered [to

minimize a chance of suit] are adding

significantly to the overall costs of medical

care” (11).

OTA defines defensive medicine as

physicians’ ordering of tests and procedures,

or avoidance of high-risk patients or

procedures, 6 primarily (but not necessarily

solely) to reduce their exposure to

malpractice risk,7 Under this definition,

many defensive practices could be beneficial

to patients, though potentially costly. Thus,

defensive

that meet

those that

medicine encompass behaviors

the goal of deterrence as well as

are truly wasteful.

OTA’s Assessment of Defensive

Medicine

OTA is currently undertaking an

assessment of the probable extent of

defensive medicine in the United States and

the potential impact of malpractice reform

on the practice of medicine. The assessment

was requested by Congressman Bill Archer,

Ranking Republican Member of the

Committee on Ways and Means and Senator

Orrin Hatch, formerly Ranking Republican

Member of the Committee on Labor and

Human Resources and Member of the

Technology Assessment Board. A separate

request was received from Senator Edward

M. Kennedy, Chairman of the Senate

Committee on Labor and Human Resources,

and Senator Orrin G. Hatch. Additional

requests were received from Congressman

John D. Dingell, Chairman of the Committee

on Energy and Commerce; Congressman Carl

D. Pursell, former Ranking Republican

Member of the Sub-committee on Labor,

Health and Human Services. Education. and
Chapter I--Introduction: The Malpractice System and Malpractice Reform -7

Related Agencies of the House Committee on

Appropriations, and Senator Charles E.

Grassley. The study was endorsed by Senator

Dave Durenberger, Ranking Member of

the Medicare and Long-Term Care Subcommittee, Senate Committee on Finance. 8

The results of OTA’s full assessment of

defensive medicine will be available early

next year.

OTA’s Background Paper

on Malpractice Reform

In the meantime, OTA has prepared this

background paper for use in the current

health care reform debate. One important

question in that debate is how Federal

malpractice reform might affect health care

costs. This background paper summarizes

what is known about the impact of such

reforms on direct malpractice cost and its

components. Specifically, the paper

documents important reforms already

introduced in many States since the mid1970s and summarizes what is known about

the impact of these reforms on three

indicators of direct malpractice cost:

■ the number of malpractice claims per

physician (claim frequency);

■ the amount of payment per paid claim

(often referred to as claim severity);

and

■ the price of malpractice insurance

(premiums),

None of these three indicators of direct

malpractice cost is complete. The total cost

of administering the system depends not

only on claim frequency and the amount

paid on successful claims, but also on the

probability of payment once a claim is made

and on how early resolution of the claim

occurs. Taken together. these characteristics

of the system influence malpractice

premiums, but their effect on premiums is

difficult to separate from the influence of

other powerful factors, such as variations in

insurers’ investment income (161 ). Also,

premiums measure only the part of malpractice system cost paid by insurers.

Nevertheless, estimates of the impact of

malpractice reform on malpractice premiums,

when the independent effect of other factors

is adequately controlled, provide the best

proxy measure of malpractice reform’s

impact on overall direct malpractice costs.

Not only do the malpractice cost

indicators help gauge which. if any. tort

reforms affect the direct costs of the

malpractice system, but they may also be

important indicators of the impacts of tort

reform on defensive medicine and the

indirect costs of the malpractice system.

These indicators may be the conduits of the

“malpractice signal” that makes physicians

practice more or less defensively.

Evidence suggests that, despite the

buffer that malpractice insurance provides

against physicians direct financial exposure

to malpractice liability, physicians find the

prospect of being sued singularly unpleasant,

disruptive, and depressing (10,71 ,90). They

may also fear that adverse publicity from a

lost case will harm their reputations and,

hence, livelihoods.9 If physicians believe

that they and their colleagues are being

sued more (or less) often and for higher (or

lower) amounts, they may react by ordering

diagnostic tests more (or less) often. 10

Malpractice premiums may also be a

good composite indicator of the relative

strength of the malpractice signal in one

geographic area or medical specialty versus

another. Inter-specialty or inter-regional

differences in malpractice premiums result

from the net effect of differences in the

propensity of patients to sue, the likelihood

and amount of payouts. and the cost of

defending against malpractice claims. Thus,

the premium may be a good overall proxy
8- Impact of Legal Reforms on Medical Malpractice Costs

for the amount of pressure that the malpractice

system puts on physicians and hospitals to

change their practices.

These indicators shed little light on

other important consequences of malpractice

reforms, such as impacts on health care

outcomes or on injured patients’ access to

compensation. For example, studies have

consistently shown that many injuries --

in fact, the vast majority -- resulting from

medical negligence are never pursued as

malpractice claims 1

1 (29,75). Tort reforms

that lower malpractice costs by limiting access

to the courts could make compensation even

more difficult for some people. And, if

malpractice reforms reduce defensive

medicine, they may also weaken the

deterrent effect of malpractice. 12 OTA’s

primary focus in this background paper is

on the impact of malpractice reform on

health care costs, not on these other

important dimensions of malpractice system

performance.

Organization of This Report

The remainder of this chapter presents

some basic background on the operation of

the malpractice system and shows trends

over the past 15 years in the three

indicators of malpractice cost: claim

frequency, payment per paid claim, and

malpractice insurance premiums.

Chapter 2 summarizes the range of

potential medical malpractice reforms and

the current status of their implementation in

the States.

Finally, in chapter 3 we analyze the

findings of selected studies of medical

malpractice reforms and summarize what is

known about the impact of these initiatives

on the three malpractice cost indicators.

BACKGROUND ON THE

MALPRACTICE SYSTEM

What is Medical Malpractice?

All medical malpractice begins with an

injury to a patient caused by a physician or

other health care provider, but not all

injuries result from malpractice. Medical

malpractice occurs in a subset of injuries

that directly result from a provider’s

negligence. Negligence is “conduct that

falls below the standard established by law

for the protection of others against

unreasonable risk of harm” (66). In the

simplest interpretation, a physician’s

behavior will be judged negligent if he or

she is found to have caused an injury by

failing to perform up to the standard of the

profession.

The law governing medical malpractice

is a type of tort law. Tort law offers

citizens a private, judicially enforced remedy

for certain injuries. The remedy typically is

money. Monetary awards are intended to

make patients whole, i.e., compensate them

for their losses. In addition, the threat of

having to pay these damages should be a

significant deterrent to further negligent

behavior.

The Malpractice Claims Process

Malpractice claims arise from a pool of

alleged medical injuries, some of which

involve physician or hospital negligence.

The system gradually winnows down the

number of claims through a process of

information exchange, discovery. negotiated

settlement. and ultimately court trial. Some

portion of the claims result in monetary

compensation to the plaintiff. Figure 1-1

illustrates the relationship between the universe of injuries and ultimate compensation.
Chapter I--Introduction: The Malpractice System and Malpractice Reform -9

Figure 1-1--Medical Injuries,

and Malpractice

Negligent Conduct

Claims

Neglige

Malpractice claims

Source: Adapted from Posner, J. R., ‘Trends in Medical Malpractice Insurance, 1970- 1985,”

Luw and Contemporary PmbZems:4g(2):37, Spring 1986.

The effectiveness of the malpractice

system in compensating victims of medical

negligence depends on how closely the

set of injuries due to negligence matches

the set of compensated victims. Ideally,

negligence-caused injuries and compensated

victims would be one and the same. If

the system discourages many legitimate

claims, many deserving patients will

receive no compensation. On the other

hand, if the system encourages many

specious claims or if it compensates many

undeserving parties, then much money will

be wasted in the process of providing

compensation to those who deserve it.

The following sections describe the

process by which injuries become claims

and claims get resolved in today’s medical

malpractice system.
10- Impact of Legal Reforms on Medical Malpractice Costs

The Decision to Seek Legal Redress

Little is known about why patients

choose to sue, but studies of negligent

injuries in New York and California

confirm that most victims of medical

negligence do not sue (29,75). The limited

evidence indicates that the decision whether

or not to sue results from both the patient’s

disposition and the physician-patient

relationship, but the severity and costliness

of the injury appears to increase the

probability that patients will seek legal

redress (55,81, 127, 157).

The decision to seek a legal remedy is

usually made in consultation with an

attorney. Virtually all medical malpractice

cases are paid for on a contingency fee

basis, whereby the lawyer’s legal fees are

paid out of the plaintiff’s award. If the

plaintiff is not awarded money, the lawyer

is not paid, Therefore, the lawyer has a

strong incentive to weigh the probability of

winning and the expected award against the

cost of making a claim (1 19, 149).

Pre-Trial Resolution of Claims

The vast majority of claims are resolved

(i.e., dropped by plaintiffs, dismissed by a

judge, o r settled through private

negotiations between the parties) before

they reach trial. In 1984, only 12 percent

of cases nationwide proceeded to trial

(142). Of these cases in trial, another 12.5

percent were settled before the jury reached

a verdict (142).13

Once a case is initiated, the parties

enter into a process of information exchange,

which can be done either informally or under

court “discovery” procedures that require the

opposing parties in a lawsuit to provide

each other with relevant factual data, The

discovery process allows each party to

assess the merits of the claim.

Many malpractice claims go no further

than pre-suit inquiry, when the medical record

can be screened by the plaintiff’s attorney

using hired medical experts. 14 About 37

percent of claims closed nationwide in 1984

were dropped or settled before a legal suit

was even filed in a court, and of these cases

36 percent resulted in a payment to the

plaintiff (142). 1

5

The exchange of information between

the parties appears to be very effective in

eliminating cases of dubious merit relatively

early in the process and providing for early

settlement for meritorious cases. For

example, a study of 252 claims brought

against a single hospital and resolved by the

end of 1989 found that, of claims either

dropped by the plaintiff or dismissed by a

judge, the majority (68 percent) involved

care that the hospital judged to be of good

quality, whereas only 10 percent were cases

judged to involve poor care (41). (The

hospital was uncertain about the remaining

claims).

Another study of almost 12,000 claims

against physicians closed in New Jersey

between 1977 and 1992 found that 67

percent were closed before discovery was

completed, and in each stage of the process,

the percentage of cases that resulted in

payment to the plaintiff was strongly

correlated with the strength of the plaintiff’s

case against the physician (135). *6 These

results are consistent with more recent

research on 187 birth injury and emergency

room malpractice claims closed between

1986 and 1989 in Florida (127). Among

cases dropped by the plaintiff, an expert

physician panel found the defendants not

liable almost three times as often as they

found them liable. When cases were settled

before trial, however, defendants were

twice as likely of be judged liable as not

liable. 1

7
Chapter 1--Introduction: The Malpractice System and Malpractice Reform -11

Determination of Negligence

The decisions whether to offer to settle

and whether to accept a settlement offer

depend on each party’s assessment of the

probability of winning and the cost of going

to trial (41, 127). These assessments are

based on the odds that a jury would be

likely to find the physician or hospital

negligent. How negligence is determined

in jury trials is, therefore, central to both

settlements and jury decisions.

What constitutes negligence in medical

malpractice? Stated simply, negligent

behavior is treatment that does not meet the

customary standard of the medical

profess ion. This standard of negligence is

unique to medical malpractice, for in other

areas of tort liability, such as product

liability, the standard of care owed by the

manufacturer to the consumer is determined

by the jury and is only informed by custom

(64,65). In practice, however, for reasons

described below. malpractice juries often

select the correct standard of care.

In malpractice, the jury must decide

whether the physician behavior was

consistent with the practices of his or her

profession. The jury is informed about the

standard of care in the profession through

expert testimony and sometimes medical

texts and other authoritative materials. This

procedure “gives the medical profession . . .

the privilege, which is usually emphatically

denied to other groups [of tort defendants],

of setting their own legal standards of

conduct, merely by adopting their own

practices” (64).

The standard of care is not defined by

the practices of medical leaders. Rather, a

physician is expected to have the skill

possessed by the average member of the

profession in good standing (64).

How is the “average member” of the

profession found? Until the early 1970s,

physicians were judged by the practices

existing in their locality, and that standard

was established for juries through the

testimony of local physicians as expert

witnesses. Because physicians in a

community might be reluctant to testify

against their local colleagues, the “locality

rule” was expanded in the 1970s to include

comparable communities or the entire State.

Specialists have increasingly been held to

national standards because they have held

themselves to such standards through

national specialty certification (160).

Although the profession-based standard

of care is simple in conception, it is

difficult to implement in practice. Both the

plaintiff and the defendant call expert witnesses who frequently assert contradictory

standards of care. When faced with

conflicting standards, the jury’s decision

may depend largely upon the credentials

and credibility of the expert witnesses. In

effect, the jury determines the standard of

care based upon the expert testimony it

finds most credible (50).

Contradictory testimony from experts is

possible partly because of the uncertainty

inherent in medical practice and the

consequent variation in practice patterns,

even within relatively small areas. The

courts have accepted such variation through

the “respectable minority” rule, which

allows a physician to follow a standard of

conduct that is not embraced by the

majority of physicians but rather by a

“school of practice” or considerable number

of physicians in good standing (50,66). In

addition, the “error in judgment” rule

protects a physician if he or she chooses

between two or more legitimate choices of

treatment (66).

Though these exceptions appear to

mitigate the power of the jury to establish the

standard of care, they are not as effective in

this regard as they appear. For example,

during malpractice trials. the attorneys can

try to create a factual dispute about whether

there are, indeed, two legitimate alternative
12- Impact of Legal Reforms on Medical Malpractice Costs

methods of practice if their expert witness

discredits one of the options. Again, because

juries must resolve factual disputes, the jury

ultimately decides which option is the

standard of care (50).

Damages

For the 10 to 12 percent of cases that

go to trial, compensation depends on a

jury’s verdict, first regarding negligence

and, if negligence is found, then regarding

damages. Of claims against physicians that

went to trial between 1975 and 1978, more

than four out of five were won by the defense

(58). Thus, damages are assessed in only a

very small proportion of filed claims.

Damages have three components:

= direct economic losses, such as health

care expenses, job-loss expenses, and

other expenses incurred as a direct

consequence of the injury;

■ noneconomic losses, or losses for “pain

and suffering;” and

■ punitive damages, potentially available

when the defendant’s conduct is

found to be intentional, malicious, or

outrageous, with a disregard for the

plaintiff’s well-being.

In assessing damages for direct

economic losses, juries traditionally were

not informed about whether the plaintiff

was covered for some of his or her costs by

a health or disability insurance policy.

Since these benefits were obtained by the

injured person through his or her own

efforts or expense, it has been considered

unjust for the wrongdoer to get a “windfall”

by receiving the benefit of them. In most

States, however, health and disability

insurers can require the plaintiff to

reimburse them for these “collateral

sources” of payment if the plaintiff

receives a malpractice award covering these

expenses. In effect, health and disability

insurers can be reimbursed by the defendant

(or his or her malpractice insurer) for their

coverage of medical and other costs incurred

because of a negligent physician. A number

of States have altered their laws to allow

evidence of such collateral sources of

payment into the malpractice trial and some

States require that these amounts be deducted

from the final award. (See ch. 2 for more

discussion of collateral source offsets.)

Noneconomic damages, which compensate victims for physical pain, emotional

distress, mental anguish, disfigurement. loss

of enjoyment, loss of companionship, and

pecuniary losses not otherwise covered, are

very controversial because the subjective

nature of the jury evaluation is thought to

lead to highly inflated awards. Jury awards

for personal injuries of equivalent severity

vary enormously. In one study, the total

damages awarded to victims with comparable

serious permanent injuries in two regions of

the country were found to range from

$147,000 to $18.1 million (15). Such

variation is caused, in part, by the failure

of the courts to provide guidelines to juries

on how to calculate damages for pain and

suffering (4, 15). In addition, estimates of

future damages for medical care and other

needs involve numerous assumptions,

especially for seriously injured plaintiffs.

Juries may not take attorneys’ fees into

account when determining damages in a

malpractice suit. (Entering evidence of

attorney fees is considered prejudicial and

irrelevant (76. 106). ) It is unknown whether

juries speculate on these fees when they

establish damages, and malpractice

attorneys have differing opinions as to

whether they do (89, 106), Thus, if no

award for pain and suffering is made, the

plaintiff may not, in the end, receive full

compensation for economic losses after

paying his or her attorney.
Chapter I --Introduction.. The Malpractice System and Malpractice Reform -13

Punitive damages are intended to punish

the defendant for grossly negligent conduct

and to provide retributive justice to the

plaintiff (4). In the latter case, the argument is that the plaintiff has suffered a

“distinctive form of dignitary injury. ”

especially when the relationship between

the plaintiff and the defendant is one of trust

or reliance (4). The monetary damages are

intended to reflect this. Punitive damage..,

however. are rarely awarded in medical

malpractice cases. 18

The Time to Claim Resolution

The preceding rough sketch of the

malpractice system tells little about how

expensive and lengthy the ordeal can be.

Most claims are not brought until a year

after the injury (142). In addition. though

many cases are settled, claims take an average of 25 to 30 months (median 19 months)

to be resolved after they are filed with the

insurer (11 1, 142), with one study showing

the time to resolution ranging from 1 month

to 11 years (142).

Malpractice Insurance

Most physicians are insured against

malpractice claims, so the monetary costs of

defending against a claim and paying

settlements or jury awards are borne directly

by malpractice insurance companies (126). 19

Physicians’ malpractice premiums vary by

the State or locality in which they practice,

the specialty or sub-specialty of practice,

and sometimes the number of hours worked,

years in practice, and attendance at risk

management training sessions (126). (Table

1-1 shows the premium categories and rates

used by New Jersey’s physician-owned

malpractice insurance company in 1988. )

Malpractice insurers almost never bas e

their physician premiums on the specific

experience of an individual doctor (125).

Malpractice claims for an individual

physician are so rare and unpredictable that

past experience is a poor indicator of future

suits ( 116, 126).

Because almost all physicians are

insured, they generally do not directly bear

the costs of a malpractice suit.20 The lack

of experience rating also means that the

financial impact of a malpractice claim on

the sued physician will be largely attenuated

through pooling of costs. 21 Although

experience-rating of physicians is rare,

financial sanctions do occur in physicianowned companies. In a survey of member

companies of the Physician Insurance

Association of America. Schwartz and

Mendelson found that about 3.2 percent of

insured physicians had some sort of

financial or medical sanction placed on

them. including 0.7 percent whose insurance

coverage was terminated because of

negligence-prone behavior ( 120). Nevertheless, except in extreme cases, the individual

physician’s malpractice cost or premium is

still rather insensitive to changes in his or

her own behavior.

TRENDS IN MALPRACTICE COST

INDICATORS

The indicators of direct malpractice

cost--claim frequency, payment per paid

claim, and premiums--reveal a cyclical path

of increase over the past 20 years and

v iv idly illustrate the onset of the two

“malpractice crises” that arose during this

period. The first crisis occurred in the

mid- 1970s. when medical malpractice

insurers raised their rates as much as 500

percent and denied malpractice coverage to

certain specialties ( 112). In California and

New York, some physicians could not

obtain malpractice insurance at any price

(126). State legislatures were quick to

respond, and between 1975 and 1976,

43 States enacted various medical malpractice

tort reforms (9).
14- Impact of Legal Reforms on Medical Malpractice Costs

Table l-l--Annual Medical Malpractice Premiums for $1 Million Dollars of Coverage,a

New Jersey 1988

Class Premium

Neurosurgery

Orthopedics (maj)

Obstetrics and Gynecology

Cardio-Thoracic Surgery; Cardio-Vascular Surgery, Hand Surgery;

Plastic Surgery; Thoracic Surgery

EENT (maj); General Surgery; Gynecology (maj); Industrial (maj);

Otolaryngology; Pediatric Surgery

Anesthesiology, Urology (maj)

Dermatology (maj asst); ER (asst); FP (asst); Gynecology (rein asst);

Internal Medicine (asst); Orthopedic (asst).....

ER (hospital); Gastroenterology; Internal Medicine (Gastroenterology);

Radiology; Roentgenology

Acupuncture; Cardiology; EENT (rein, maj); ER (non-hospt.); FP (rein);

GP (rein) Gynecology (non-hospital, rein); Internal Medicine

(General, Cardiology, Endocrinology, Hematology, Nephrology,

Oncology, Pulmonary Disease); Ophthalmology (mint maj);

Rheumatology; Orthopedics (non-hospital) . . . . .

Dermatology (rein); EENT (no); FP (no); GP (no); Neurology (rein);

Nuclear; Ophthalmology (no); Pediatrics (no); School Physician

Allergy, Forensic, Hematology, Manipulation, Oncology, Pathology

$42,000

$35,000

$31,000

$28,000

$25,000

$19,000

$13,000

$10,000

$7,000

$6,000

$4,000

ABBREVIATIONS: EENT = eye, ear, nose, throat; ER = emergency room; FP = family practice; GP = general practitioner; asst

= assisting surgery practice; maj = major surgery; min = minor surgery; no = no surgery; off = nonhospital or office practice,

aTheW premiums are for coverage for $1 mi[lion/$1 miilion/M million (per medical incident/per awqate wW wjOd/ w

aggregate extended policy period).

SOURCE: Rolph, J. E., “Merit Rating for Physicians’ Malpractice Premiums: Only a Modest lkterrent,(’ law and Contemporary

Problems 54(2):65-86, Spring 1991.
Chapter 1--Introduction: The Malpractice System and Malpractice Reform -15

Table 1-2--Claims per 100 Physicians, 1980-1984

State 1980 1981 1982 1983 1984

AR 6.6 8.4 8.8 7.7 8.6

CA 20.4 22.3 22.5 24.6 26.0

FL 20.8 31.6 32.3 29.1 26.1

IN 5.3 6.0 7.9 9.8 10.2

NY 27.1 28.9 31.4 38.1 35.7

NC na 7.5 8.7 8.9 8.9

SOURCE: General Accounting Office, Medical Malpractice: Six State Case Studies Show Claims and Insurance Costs Still

Rise Despite Reforms, GAO-HRD-87-21, December 1986.

The second crisis occurred in the mid1980s, when premiums again rose substantially. Some States responded with additional tort reforms, many of the same type

passed in the 1970s (14).

Illustrative statistics on trends in claim

frequency, payment per paid claim and

malpractice insurance premiums are presented below.

Claim Frequency

Published data on trends in

quency are available only for

later. The data show conflicting

GAO survey of claims reported

claim fre1980 and

trends. A

by leading

malpractice insurers in six states showed a

steady increase in the number of claims per

100 physicians over the period 1980-84 in

every State (141). (See table 1-2. ) However,

a more recent analysis of claims filed in New

York State (one of the six states studied by

GAO) using similar data sources showed a

much lower rate of claim frequency (on the

order of 13 per 100 physicians) and a much

less pronounced trend in claim frequency

over the 1980-84 period (51), The later

study used a more limited definition of

“claim” than did GAO, excluding from the

analysis “potential “claims that insurers open

even before a patient files a claim with the

insurer or court. Insurers often encourage

their policyholders to report adverse events

early as a method of risk management (5 1),

and if insurers became more aggressive

about risk management over the period of

measurement, the trend observed in the

GAO study could be spurious.22 Another

study that measured both formal claims and

incidents reported to insurers in three states

(Minnesota, North Dakota, and South

Dakota) in the period 1982-87 showed no

increase in claim frequency (table 1 -3).

Claim frequency appears to have declined

in the late 1980s. Data from American

Medical Association for 1985 through 1990

Table 1-3--Physician Malpractice Claim

Frequency, 1982-1987 in Minnesota, North

Dakota, and South Dakota

Year Claims per 100 insured

1982 10.4

1983 11.7

1984 11.6

1985 13.5

1986 10.7

1987 11.6

SOURCE: State of Minnesota, Department, of

Commerce, “Medical Malpractice Claims

Study: 1982-87,” St, Paul, MN, 1989.
16- Impact of Legal Reforms on Medical Malpractice Costs

Table 1-4--Annual Malpractice Claims per 100 Physicians: National and Regional Data

Average annual

rate of change,

Year 1985 1986 1987 1988 1989 1990 1985-1990

National 10.2 9.2 6.7 6.4 7.4 7.7 -8.9%

By region

New England 7.6 10.1 4.0 8.4 4.0 2.4 -31.9

Middle Atlantic 13.9 12.7 7.8 7.1 7.5 9.6 -11.6

East North Central 13.2 10.1 10.5 7.5 10.8 9.5 -10.4

West North Central 9.6 8.6 3.9 4.0 5.9 5.8 -15.5

South Atlantic 7.0 7.5 5.6 4.7 4.8 5.7 -6.6

East South Central 5.5 7.3 9.2 6.4 9.0 5.6 0.6

West South Central 12.4 8.6 6.3 10.4 10.7 11.4 -2.8

Mountain 6.2 9.0 4.1 5.0 5.6 8.8 12.4

Pacific 9.3 7.5 5.4 4.4 6.1 7.0 -9.0

SOURCE: American Medical Association, Socioeconomic Characteristics of Medical Practice 1992 (M. Gonzales

cd,) (Chicago, IL: American Medical Association, 1992),

show claim frequency declining for all

specialties after 1986 (table 1-4). 23 A n

informal survey of malpractice insurance

companies conducted in 1992 revealed that the

frequency of claims per 100 physicians may

be increasing once again (85). However, data

provided to OTA by St. Paul Fire and Marine

Insurance Company (the largest malpractice

insurance company in the U. S.) show a stable

pattern of claim frequency from 1990

through the first half of 1992 (13 1).

Payments

Total payouts from malpractice claims

depend both on the probability that a claim

actually results in payment and on the

amount paid per claim. Data are available

on the average amount paid per paid claim,

but trends in the probability of payment are

unavailable. Payouts can be measured at

the aggregate level by examining trends in

malpractice insurers’ incurred losses.24

The mean malpractice award increased

steadily from 1975 to 1984 at a rate twice

as great as the consumer price index

(35,54). Only a small part of this increase

may be attributed to the increasing cost of

medical care over the period, because only

about 22 percent of total awards were for

medical expenses (14,97).

Researchers at the Rand Corporation

examined malpractice jury verdicts from 1960

through 1984 in two areas of the country:

San Francisco, California, and Cook County,

Illinois (108, 109), In the years 1975 to

1979. the average malpractice jury award in

San Francisco was $644,000, and in Cook

County it was $324,000 (109). Between

1980 to 1984. the average jury verdict was

$1,162,000 in San Francisco and $1,179,000

in Cook County (109). (These figures are all

in 1984 dollars). This represents an 80

percent increase over the period in San

Francisco and a 263 percent increase in Cook

County .25

Bovbjerg and colleagues also reported a

substantial increase in jury verdicts in five

separate areas of the country (including

those studied by the researchers at Rand)

after adjusting for inflation ( 16), The

average verdict (in constant 1987 dollars)

increased from $501.000 in 1980 to $1.3

million in 1985 ( 16). Jury verdicts are

rare, of course, as most cases are dropped,

dismissed, or settled before they reach trial,
Chapter 1--Introduction: The Malpractice System and Malpractice Reform -17

Nevertheless, expectations about the potential

size of a jury verdict enter the decisionmaking process during the early phases of a

case. Thus, increases of this magnitude

could be a marker for increases in awards

across all cases, regardless of the stage of

the litigation process at which they were

settled.

Total direct insurance losses, a measure

that combines trends in both payment per

paid claim and the probability of a claim

resulting in payment, has declined in both

current and constant dollars in recent years.

In the period 1979-1985, direct insurance

losses increased at a rate of 25 percent per

year (61 ), compared with a 2.7 percent

annual decline between 1985 and 1991 (98).

These changes suggest that either the mean

payment per paid claim or the probability of

payment, or both, have declined in recent

years.

Malpractice Insurance Premiums

Figure 1-2 shows national trends in the

price of a standard malpractice policy (i.e.,

for coverage of $100,000 per occurrence and

$300,000 per year) across five medical

specialties from the mid-1970s through

1986 (126).26 The price of malpractice

insurance increased rapidly in inflationadjusted dollars during the two malpractice

crisis periods -- the mid- 1970s and the

mid-1980s. A more recent study of changes

between 1989 and 1991 in the price of a

standard malpractice insurance policy, this

time for coverage of $1 million per

occurrence and $3 million per year, found a

10 percent decline in premiums during

the period (162).

The price data presented above do not

fully reflect the cost of buying adequate

coverage, because many doctors felt the

need to purchase more extensive coverage

(126), probably in response to increases in

claim payments over the period .27 Data on

aggregate premium payments for malpractice

insurance throughout the country show an

inflation-adjusted increase between 1985 and

1991 of 6 percent (see table 1-5). In recent

years, however, premiums have actually

declined nationally. When inflation is taken

into account, aggregate premiums declined

approximately 16 percent between 1988 and

1991.28

IMPACT OF MALPRACTICE ON

DEFENSIVE MEDICINE

Whether and by how much physicians

tailor their practices to avoid the cost,

disruption, and discomfort of being sued is

2 at present a matter of conjecture. 9 It is

difficult to measure the extent of defensive

medicine because the effect of malpractice

can work through subtle avenues, including

the incorporation of defensive practices into

physicians’ training. If all physicians are

affected in their practices by the fear of

malpractice, then studies that examine

variations in practices across physicians (or

even over time) will not be able to pick up

the full impact of defensive medicine.

Only one study to date has documented

a relationship between the malpractice cost

indicators in an area and the utilization of a

medical procedure. That study, by Localio

and colleagues, found that New York State

obstetricians who practice in hospitals with

high claim frequency and high malpractice

premiums do more Caesarean sections,

(controlling for patient severity and other

factors that might affect the Caesarean section

rate), than do obstetricians practicing in

areas with low malpractice claim frequency

and premiums (75). The incremental effect of

higher claim frequency and direct malpractice

cost on this one medical procedure appears to

be large. For example, the odds of a

Caesarean section in a hospital with the

highest frequency of obstetric malpractice
18- Impact of Legal Reforms on Medical Malpractice Costs

Figure 1-2--National Trends in Malpractice Premiums,

1975-1986

$20

T

OBG

i

I

ORTH

$15

GSUR

1,,<--,-- “

$10 . : -- ANEST - ,. -

- - -

/

----- - ,“ /. \- ., _/-’ .<-

---

-. -- —--

-- - —— — ..— —— - — — 

-

$5 4’

I , GP

,/-------- —-

. —--------

l—-+---–}~----

1975 76

, y–”~—~-”-- ,

77 78 79 80 81 82 83 84

,-----

85 1986

Year

Abbreviations: ANEST = Anesthesiology

GP = General Practice

GSUR = General Surgery

OBG = Obstetrics/Gynecology

ORTH = Orthopedics

Note: Mean annual premiums for $100,000/$300,000 policy limits

Source: Sloan, FA., Bovbjerg, RR, and Githens, P.B., Insurimz Medical Mahxactice (New York,

NY: Oxford University Press, 1991).

claims were 32 percent greater than the At present, the pressure

odds of a Caesarean delivery in a hospital defensively occurs in a health

to practice

care system

with the lowest frequency of obstetric

malpractice claims. Because the study

explored only the incremental impact of

high versus low malpractice system

indicators, its results provide a conservative

estimate of the impact of the malpractice

system on Caesarean section rates. The

fear of malpractice may be operating in

the background to affect all physicians

decisions.

that in large part imposes no financial penalty

on doctors, and little on hospitals, for such

behavior. Indeed, under fee-for-service

payment of physicians and charge-based

reimbursement of hospitals, physicians and

hospitals actually make more money when

they perform some procedures or tests for

defensive reasons. Under a different payment

regime--for example. a regime of managed

competition--30 providers would have an
Chapter 1--Introduction: The Malpractice System and Malpractice Reform -19

Table 1-5-Aggregate Premiums Paid for Malpractice Insurance in the United States, 1985-1991

Premiums Annual rate Premiums Annual rate

($ billions in of change ($ billions in of change

Year current dollars) (percent) 1985 dollars) (percent)

1985 2.66 .- 2.66 -.

1986 3.81 43% 3.75 41 0/0

1987 4.55 19 4.24 13

1988 5.07 11 4.61 9

1989 5.12 1 4.43 -4

1990 4.93 -4 4.08 -8

1991 4.86 -1 3.85 -6

Rate of change

1985-1991 (o/o) 11 6

SOURCE: National Insurance Consumer Organization, “Medical Malpractice Insurance 1985-1991 Calendar Year

Experience,’( Alexandria, Wginia, National Insurance Consumer Organization, March 1993, based on data

from annual reports on profitability published by the National Association of Insurance Commissioners

incentive to consider the costs of practicing payment per claim might have a smaller effect

defensive medicine against the reduction in on defensive medicine than such reforms

risk of suit and might engage in such practices would have in the present health care system.

less frequently even in the absence of tort In short, the impact of any tort reform on

reform. Under a payment regime that itself defensive medicine will depend on the

discourages defensive medicine, tort reforms payment regime in which the tort reform

that reduce malpractice claim frequency or is implemented.
20- Impact of Legal Reforms on Medical Malpractice Costs

Footnotes for Chapter 1

1Ma]practice insurers make par( of their income from premiums and part from im’csting those premiums

in income-producing assets. The price of malpractice insurance (i.e.. the prcmium) reflects the

in~’estment potential of the premium as well as the need to co~’cr cxpcctcd future 10SSCS , Thus. the

premium in any year approximates the amount that must be imwted (at the expected interest rate) to pay

off losses as the>’ occur in the future, meet operating expenses. and repa) the in~’esters in insurance

companies for the risks they bear. As the interest rate expected from capital intfcstmcnts rises and falls.

premiums are adjusted accordingly to assure a compctiti~’e rate of return to the in~rcstors ( 126). Because

expected interest rates ~’ary over time, premiums will too, for reasons that often hmc nothing to do \\ith

the number or kinds of malpractice suits.

2This js based on 1991 estimated health care cxpcnditurcs in the United states of $751.3 billion (72).

~ApproximatelY, 20 t. J() percent of hospitals are self-insured (93), and a S11K311 proportion of PhJ’sicians do

not carry malpractice insurance.

4A detailed memorandum describing OTA’S proccdurc for estimating lllC COSI Of SClf-lllSUIW1lCC IS a\ailablc

upon request.

5Thc other major goal of the malpractice slrstem is to compensate \’lCtlnls fOr thCir losses.

6 T hc performance of tcs[s and procedures for defensii’c purposes IS pOSitiF’C ~~f~nSi\’c medicine;

a~’oidance of high-risk patients or procedures is ncgati~’e (lcfcnsi}’c medicine.

7A more strlngcnt definition of defensi~e medicine would limit it to tests and procedures that arc ordered

solely to protect the physician against future malpractice suits. Under this definition, the phj’sician

would be engaging in defensive medicine only when he or she bcl ictcs that the test or procedure offers

absolutely no chance of helping the patient and is therefore pure waste, OTA rcjcctcd this stringent

definition of defensive medicine for two reasons: first, such bcha~’ior \riolatcs ph~rsicians’ ethical

principles; and second, medical practice involves implicit judgments about whether the benefits of tests

or procedures outweigh their risks and costs to the patient. The fear of being sued may cause phj’sicians

to increase their threshold of tolerance for these risks and costs.

8Thc Congrcsslonal Sunbelt Caucus (J. ROY Rowland and Michael Bilirakis. Co-Chairmen, Infant

Mortality Task Force) requested that OTA examine the specific issue of tfhcthcr Medicaid recipients file

a greater number of suits against obstetricians than women who arc co~crcd b) pri~’atc insurers.

9Recent Fcdera] legislation ma} ha}c increased phj’siclans’ a~rcrsion tO 1lU]l~r:]ctlcC SUltS. Thc Health Care

Quality Impro\rement Act of 1986 (Public Law 99-660) requires tha[ all medical malprac[icc claims

ending in payment (settlement or verdict) be reported to a National Prac[i[ioner Data Bank main(aincd by

the Department of Health and Human Scn’ices, The Data Bank must be consulted b~r hospi[als whcnck’cr

a practitioner applies for staff pri~filegcs and at least CJICO tw’o >cars thereafter (45 CFR $ 6(1. 10), At the

\’cry least, phj’sicians who ha~’c been sued and lost or settled will ha\c the discomfort of haling to jus[if~

their malpractice experience to the institutions at which they prac[icc.

IOHoJ%,eYer, Phjslclans appear t. grossl}r okcrestimate the probability of being sued for n~alpraclicc (7 1). so

.

defensive medicine may not be Icry sensitive either to differences in rates of suit or to pa>vncnt Ic\cls in

successful suits.

1 IRescarchers at Ha~ard University found that for ef’ery 7.5 negligent medical lnJUrlCS OCCUrriIlg in

hospitals in the State of New York in 1984, only one malpractice claim w’as filed, Among patients

subjected to serious injury bj’ negligence, onl~r about one-third filed a claim (75).

121n an attempt t. Cstlmate the deterrent effect of medical malpractice. researchers at Hanard uni~’crsil}’

recently anal~’zed the relationship between the number of malpractice claims per negligent injur-j and the

rate of negligent injuries in New York State hospitals in 1984. The?’ failed to demonstrate a significant
.

Chapter 1--Introduction: The Malpractice System and Malpractice Reform -21

relationship between malpractice claim acti\it? and the rate of ncgl igent i]~jun in a hospita] ( 157).

Although the rcscarchcrs based their analjsis on a con~prchcnsi\c assessment of the frcqucnc} of

ncgl igcncc in New York hospitals, the analjsis ]\’as still limited bj a small sample size (less than 50

hospitals) and a single jcar of data. Thus, the analysis ma} not ha~c been po\\crful enough to detect a

deterrent effect with suff]cicnt confidence.

1 ~ThcsC findings are consistent with other Surlc}fs of malpractice Claims (~~.~ 1.97)

l~prior t. forma] fillng of a suit, the confidcntia]it} of the phjsician-patient relationship is prcsc~cd. so

the insurer cannot talk vith the doctor about the claim without rccciting permission from the patient.

The plaintiff (or his or her attornc~r). on the other hand. can obtain a cop! of the medical records and can

also talk with the doctor about the case if the doctor is ui]l ing Once the suit is filed. the State or Federal

rules of disco~cry prc~ail. and the plaintiff and defendant CaJI question each other and other }1 itncsscs

( 106),

1 ~This Cstlmatc, and others taken fronl the General Accounting OffICC’S st~]d~ of chilnls closed II] 1 ~~~

( 142), was based on a probability> sample ofapproximatclj 1700 claims (68) -

16Thc strength of [hc case \Jas assessed b} the insurance compan~ using an in[crnal prOCCSS Ih:lt assigns

each case to one of three categories: defensible, indefensible. and unc[car,

17Ncgligcncc \\as judged b~ ph~slclan panels based On medical ma]~rac[icc closed cklinls forllls. tl~c

hospital records, and inforn~ation gathered from claimants through personal intcn ic~ts ( 127) It should

be noted. howc~cr. that in a large pcrccntagc of cases the rc~im~crs \\crc uncertain as to ll~c ph! sician’s

Iiabi lit? ( 127).

I Sscc (~ J 11 ~), In a rcylc}} of nlcdica] malpractice trials in San FI-a IICISCO and COOk Co(lllt!. III il~ois . .

from 1960-1984. onl~ 9 awards included puniti~c damages, accounting for less than 1 pcrccnt of

plaintiff’s \’crdicts (107), A recent stud~’ examined 4747 malpractice claims filed in Minnesota. North

Dakota and South Dakota between 1982 and 1987, No puniti~c damages \\crc a~t ardcd in aIIj of tl]c 110

cases that actuall~ rcachcd trial. (Onl>r 20 of the 110 cases had an~ compensation a\\ ardcd (o the

plaintiff.) (94).

19Bcforc tllc ~ 970s ~lost nlalpractlcc i[lsurancc \Jas \\rlttcn b} prilate commcrcid ins~lr:~ncc con~P~~l~ics

.

In the carl~ 1970s, man! insurers raised their premiums and. in some cases. exited [he market

con~plctclj. When a number of commercial insurers quit the market. medical and hospital associations

and States jo i ncd to expand the pool of insurers. By 1986, about 37 pcrccnt of ph! sicl ans ~t crc Insured

through ph)sician-sponsored companies ( 120).

20111 ~1 slllal] nulllbcr of cases the ju~ a~~ ard Ina} cxcccd the limits Of tllC In:]lwicticc ins~lraI~c~ Pollc!. bL1t

such awards arc frcqucntl}’ rcduccd by judges or b~’ post-trial negotiations among (he part ics (26 ) In

some cases, the insurance company will pay for awards abo~c the phl sIcIan’s insurance 1 imit The result

is that ph~sicians rarcl~ pa~ anjlhing abo}c their polic~ limits (26).

21111 contrast t. ph~ slclans. hospita]s arc gcncrall}’ cxpcricncc-rated b~ Insurance companies (~ 1 ). ~~nd

man} large hospitals insure thcmscl~’cs for malpractice (93). Hospitals [hcrcforc ha\c a clear fin;~nciai

interest in managing their malpractice risks,

22T}Ic rcscarchcrs in the second stud} tried unsucccssfull}’ to rcplicatc tllc GAO results froll~ NCJJ York

using the same databases. so the source of the d iscrcpanc) in lc\ cls and t rcl]ds IS not ful 1! ul]cicrstood,

2SAlthough oJcra]] C]aj[ll rates dcc]incd, t]lc rate of change \aricd J\ idcl} :ICI”OSS spCCialt ics. Obslctrics ‘]lld

gjnccology had the highest rate of charlgc in liabilit? claims per loo” ~h! sicians bct\\ccn 1985 and 1990

(-23 pcrccnt), but thcl began with more than ti}icc the a~eragc frcqucnc~r of claims (25.8 pcr 100”

physicians compared with 10,2 pcr 100 physicians across all specialties In 1‘)85) (6),
22- Impact of Legal Reforms on Medical Malpractice Costs

24 Losses incurred are defined as the sum of claims paid by insurers to doctors and hospitals plus insurers’

estimates of what they expect to pay out in the fhture on both claims they’ know about and those ttvq’ do

not yet know about. Direct losses are the losses incurred by the insurer before taking into account an}

protections the insurer may have through reinsurance.

25This increase occurred in California despite the passage of a cap on noneconomic damages of $250.000

in 1975, However, the constitutionality of the California malpractice reform law of 1975 was in question

for 10 years afler its passage, and most lawyers and judges were reluctant to implement its pro~isions

until it was upheld by the California Supreme Court in 1985 (Fein Jr. Pcrmancntc Mcdica] Group, 695

P.2d 665 (Cal. 1985) cer(. denied 474 U.S. 892, 106 S. Ct. 214 (1985): 22: 59: 78).

26 The data presented in the fi~re were calculated from data collected by the U.S. Health Care Financing

Administration. It can be interpreted as the price of a mature clairns-made $100,000 pcr incident and

$300,000 per annum.

27 According t. Danzon, in 1976, 79 percent of physicians carried $300,000 of cmreragc, but @ 19~6 o~’cr

50 percent carried at least $1 million dollars in coverage (33). By 1988, approximatel~r t~~o-thirds of

physicians had coverage of at least $1 million per occurrence (145).

28 These rates of change in pwnlurns are roughly equivalent to those reported by physicians [o the

American Medical Association (AMA). The AMA reported an annual rate of change in a~cragc

premiums paid by surveyed physicians of 11.4 percent between 1985 and 1990, but the a~cragc reported

premium declined by 8.8 percent between 1988 and 1990 (6),

290n1Y t~vo quantitative estimates of defensive medicine costs exist. First. the AMA estimated that

national costs of malpractice were between $12.1 and $13.7 billion in 1984 (114). This estimate has

been criticized for biases in its methodology, (15,32, 140). The second anal~’sis, made rcccntly by the

private consulting firm Lewin-VHI, Inc., estimates defensive medicine costs of bct}lccn $4.2 and $12.7

billion in 1991, (73), but these new estimates are based primarily on the earlier AMA estimates and

hence are subject to many of the same methodologic criticisms.

soManaged competition in this paper refers to a system in which each consumer ChOOSCS anlOng con~pCllng

health plans that offer a standard set of benefits at different prices (i.e.. prcmiums). Compcti[ ion among

plans for patients on the basis of price as well as quality would presumably force plans to look for

opportunities to eliminate wasteful or only marginally useful scn’ices. Plans would c.~crt greater

influence on their participating doctors and hospitals to curb such prac~iccs.
Chapter 2

Approaches to Malpractice Reform: States’ Experience and New Ideas

INTRODUCTION

Because malpractice liability is felt by

many interested parties to be a contributor

to health care cost escalation, numerous

medical malpractice reform provisions have

been proposed both as components of comprehensive health care reform bills and as

separate pieces of legislation. 1 A number

of the proposed reforms have already been

implemented in some States. To understand

whether and how Federal adoption or encouragement of these reforms might affect

current trends in medical malpractice, it is

important to examine the experience of

States that have tried them.

This chapter describes the malpractice

reforms that have been implemented or

proposed to date. It focuses exclusively on

strategies that would change the way malpractice claims are handled in the legal

system--strategies commonly referred to as

2 For each type of reform, it “tort reforms."

offers a brief description of the rationale and

mechanism. discusses State experience (if

any), and raises what have been or are likely

to be key issues of concern, Appendix B

briefly discusses constitutional challenges to

State reforms and the implications of these

challenges for Federal tort reform efforts.

Chapter 3 provides a comprehensive and

critical review of the existing empirical

evidence of the impact of these reforms on

medical malpractice claims and insurance

premiums.

OVERVIEW OF MALPRACTICE

REFORM APPROACHES

Tort reform approaches range from

modest to comprehensive. Some would

largely retain the current system for resolving malpractice claims but change some of

its legal rules; others would entail broader

changes in the forum for deciding malpractice claims; still others would eliminate the

current fault-based system and create an

entirely new system for compensating

victims of adverse medical outcomes.

The goal behind many of the reforms

that have been implemented to date is to

reduce the frequency and/or payouts for malpractice claims. Some do this by limiting

malpractice awards (e. g.. caps on damages):

others, by limiting access to the courts (e. g.,

pretrial screening): and still others. by

changing the legal rules for determining

physician negligence (e. g., use of practice

guidelines to establish the legal standard of

care).

It should be noted that concern for

patient s--e. g., increasing access to the

courts for the many meritorious claims that

are never filed and reducing the incidence

of malpractice has been conspicuously absent from the rationale supporting many of

the existing reforms. Rather, most reforms

have been driven by the perception of a

“malpractice crisis, ” in which high litigation

rates and questionable financial incentives are

viewed as the culprits.

One exception is procedural reforms. such

as alternative dispute resolution (ADR), which

attempt to reduce the costs of resolving a

malpractice suit, facilitate quicker resolution

of suits, create more rational and uniform

damage awards, and/or decrease the

adversarial nature of the litigation process,

Many ADR procedures are already available

but are not widely used in medical

malpractice. More comprehensive ADR

proposals, such as the American Medical

Association/Specialty Society Medical Liability

Project (AMA/SSMLP) administrative system,

would require legislative action to implement and are now merely proposals.

The potential impact of these procedural

reforms is difficult to predict. To the

_ 23-
.

24- Impact of Legal Reforms on Medical Malpractice Costs

extent that they lower the costs of bringing

a suit, or otherwise make litigation more

appealing, they may prompt additional suits.

However, if these strategies discourage or

weed out nonmeritorious suits, they may

enable more deserving victims to receive compensation without greatly increasing costs.

Some recent reform proposals aim to

change the malpractice system in a more

fundamental way. For example, enterprise

liability is designed to remove personal

liability from the physician and place it on

the health care organization in which the care

was given. The goals of enterprise liability

include improving quality control in the

provision of health care, reducing overall

premiums, and simplifying the resolution of

malpractice claims. Another proposal would

reform liability through private contracts,

allowing providers and patients to contract

for different liability arrangements. This

reform rests on the assumption that uniform

legal rules for liability may not serve the

interests of all providers and patients.

Providing them with the authority to contract for different liability systems may

prove more efficient in terms of cost, time,

and psychological effort involved in resolving a malpractice claim.

Finally, there are proposals to replace the

fault-based malpractice system with a nofault system (e.g., one that is analogous to

workers’ compensation). There are several

arguments for such a change, including the

need to increase the percent of injured

persons who receive compensation, to control administrative costs, and to remove the

stigma of a malpractice claim for the physician.

Most of the tort reforms proposed or

considered at the Federal level have been

implemented in a number of States over the

past two decades (see table 2-1).3 In recent

years, a few States have begun experimenting with more innovative reforms, such as

limited no-fault programs and the use of

practice guidelines in determining the legal

standard of care. Some proposals have been

debated mainly in academic journals and by

interest groups, not in legislatures. All of

these reform proposals are discussed below.

REFORMS TO REDUCE THE

FREQUENCY AND COST OF

MALPRACTICE SUITS

Economic theories of behavior postulate

that a patient’s decision to sue is based in

part upon the expected return, net of legal

fees and other costs of litigation (16), The

patient’s attitudes toward risk and the judicial system may also play a role (4 1.92). A

number of reforms attempt to 1imit the

frequency and cost of malpractice litigation

by altering the financial incentives to sue or

by changing the legal rules of the system to

discourage lawsuits. Some of these reforms

simply attempt to reduce the number and

monetary size of lawsuits, irrespective of

their merit. Others discriminate more

carefully between meritorious and nonmeritorious claims in their attempt to stem

litigation.

Several reforms attempt to discourage

plaintiffs from pursuing claims by raising

the transaction costs of bringing a suit or by

placing restrictions on damages. A second

class of reforms attempts to reduce the

number of suits by changing the process or

the incentives for filing a lawsuit. For

example. limits on attorney fees both lower

transaction costs and control lawyers’ financial incentives to take on plaintiffs cases.

Shortening the statute of limitations and

requiring pretrial screening present

additional barriers for individuals who want

to pursue litigation. A third class of reforms

attempts to reduce the probability of a plaintiff’s success by changing the legal rules for

determining physician negligence.4
Chapter 2--Approaches to Malpractice Reform: States’ Experience and New Ideas -25

Limiting Access to the Courts

Several reforms limit plaintiffs’ access

to the legal system. Statutes of limitations

act to cut off all access after a certain period of time. Most other reforms focus on

limiting the number of nonmeritorious

suits brought, although in practice they may

discourage other meritorious suits.

Shortening Statutes of Limitations

Statutes of limitations are legal rules

that determine how long after the injury one

can bring a lawsuit. Part of the rationale

for limiting the time in which a plaintiff

can file a lawsuit is (hat evidence becomes

stale over time (e.g., witnesses leave or die,

evidence is lost, and the accepted standard of

care may change). At some point, the

plaintiff’s right to bring a suit is outweighed

by the defendant’s interest in not being

subjected to a suit in which some of the

evidence needed to defend himself or herself

is no longer available. The limitations also

allow individuals and insurers to anticipate

future liability from past conduct (66).

Requiring a patient to bring a lawsuit

within a certain number of years after the injury may appear reasonable; however, in

some cases medical injuries are not discovered

for a long time. To address this problem, the

courts adopted a “discovery rule” in which the

period during which a suit can be brought

does not begin until it was reasonable for the

plaintiff to have discovered the injury (66).

Most medical malpractice statutes of

limitations now include such a “discovery”

provision. The standard leaves judges to

decide when it was “reasonable” to have

discovered an injury and may therefore still

allow some claims to be filed long after the

medical treatment that caused the injury. In a

study of 48,550 medical malpractice claims

closed between 1985 and 1989, the average

time elapsed between the date of the incident

and the date it was reported to the malpractice

insurance company was 20 months: however,

the time elapsed exceeded 3 years in approximately 10 percent of the claims studied (111).

Every State has some statute of limitations for medical malpractice claims. During

the 1970s, a number of States shortened the

statutory limits in hopes of decreasing the

number of old suits brought. The new statutes of limitations usually make exceptions

only in cases involving fraud, deliberate

misconduct, or foreign obiects left inside a

patient during surgery (see app. A, table A4). The traditional provisions for minors

(which typically extended the statute of

limitations until a specified time after the

child has reached the age of 18 or 21 ) have

often been limited as well (14). A number of

restrictions on statutes of limitations have

been overturned by State courts, especially

restrictions for minors. 5

Today, most States require that a malpractice suit be brought within a specified time of

the date of the negligent care or injury (in

most States within 2 years) or, in cases

where the injury cannot be discovered

easily, within 6 months to 3 years after

the injury is discovered or should have

reasonably been discovered (table A-4). In

California. for example, a malpractice suit

must be brought within 1 year of reasonable

discovery of the injury, or within 3 years of

the date of the injury (Ann. Ca. Code C.C.P.

$340.5 (West 1982)). In only

the statutes of limitations

discovery provision.

Pretrial Screening Panels

eleven States,

do not contain a

Another reform that limits access to

the courts is the use of pretrial screening

panels to review cases before they go to

court.6 These panels may offer a mandatory

or voluntary screening process by which the

merits of the case can be reviewed and

nonmeritorious suits weeded out (14). The

typical panel consists of a physician or other

health care worker, a legal professional

(e. g.. retired judge or lawyer), and a
26- Impact of Legal Reforms on Medical Malpractice Costs

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Medical

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Arbitration Attorney Fee Caps on Collateral Periodic Payment of Pretrial Screening

State Provisions b

Limitsc Damages Source Offset Awards Panels

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Pennsylvania o 0 0

Rhode Island M D o

South Carolina D

South Dakota d d D M

Tennessee d M M

Texas o

Utah d d d M M M

Vermont M

Virginia 4 d v

Washington 4 0 M

West Virginia d

Wisconsin d d

Wyoming o

. . . .

M = Mandatory

D = Discretionary

V = Voluntary

O = A malpractice specific provision was overturned by Court. In certain States, the legislature corrected the constitutional deficiency.

Footnotes:

a

For additional details on all categories, see aPP. A

bA Id II indicates States with “Oluntaw, binding arbitration provisions that are designed Specifically for medical malpractice cases. Voluntary, binding arbitration is

an option in every State under general arbitration statutes. In Hawaii the provision applies to mandatory non-binding arbitration.

cA ,~ II in IIAHorney Fees” means the statutofy provision limits attorney fees to a specific percent of award.

determine or approve attorney fees (see app. A).

SOURCE: Office of Technology Assessment, 1993.

In a few States the courts are given the authority to
. .

28- Impact of Legal Reforms on Medical Malpractice Costs

‘< -r-.

‘\ 5L’-’”-

-v-

~“

“QI

‘ /

,.-’

..-’

1

-. Mandatory

Pretrial Screening 4* *

0t-.- %-.-,-.-,,-,...-....,....,,,,.7,,,.

i

‘::<ff~~~:~~~~:~~’2:’’~’”f’ . . . . . . . . . . . . . . . . ..............% ..7...7,.:.:.:.%+,/

. ,.,,,,,, ,,<< voluntary

I

::::::::::::::::::::::::::jj:c:,::::::y.y ;j::~;::;::;;:;\f;;~<f+j

.:A2:9MWAIIZAW Pretrial Screening

——.——1

Source: Office of Technology Assessment, 1993,

layperson. The panel’s judgment usually does not sit on screening panels.

preclude the parties from going to court; members on the panel

however, the judgment is often admissible erable delay (20).

I No Provision

States that require more

may experience considin any subsequent trial and may influence the

jury (20,48).

OTA identified 22 States with some form

of pretrial screening. In 16 of these States the

provision is mandatory (although in some States it

can be waived if requested by one or both parties), and in an additional six it is voluntary (table

2-1; figure 2-l). The details of screening panel

composition and function vary among States and

can change the panel effectiveness. One recurring problem is recruiting professionals willing to

The panel role and the admissibility of its

decision in subsequent proceedings may also

determine its influence on the disposition of the

claims. In some States the panel can render an

opinion on damages, while in others the panel

can address only liability (20). The admissibility of the panel decisions in further judicial

proceedings and the evidentiary weight accorded to the decision also vary. Some States

allow the decision to be admitted if both parties

agree. At least one State does not permit the
Chapter 2--Approaches to Malpractice Reform: States' Experience and New ldeas -29

decision to be introduced in further proceedings

unless it was unanimous. One State--

Maryland--requires that the decision (on both

fault and damages) be admitted in subsequent

trials, and the jury is instructed to presume that

the panel’s decision is correct unless rebutted

by the party rejecting the finding (Ann. Code

of Md. Cts. & Jud. § 3-2A-06 (Michie 1989)).

In other States, the decision is admissible but is

not regarded as definitive evidence. (See appendix A for further details. )

Pretrial screening provisions have been

overturned in six States on the grounds that

they infringe upon State constitutional

guarantees of right to trial or access to

courts. 7 In five other States, pretrial screening

provisions were passed but then repealed

through legislative action (table 2-1).

A less involved approach to screening suits

is the requirement that the parties meet for a

settlement conference prior to trial. The parties may be required to submit a reasonable

settlement offer at the conference. This is not

a novel idea, and many courts have implemented it without explicit legislative directives.

Finally. some States require the plaintiff to file

a certificate of merit prior to filing a suit.

A certificate of merit is basically an affidavit

by a physician attesting to the fact that the

plaintiff’s case has merit (see. e.g., 735 ILCS 5/2-

622 (West 1992); Ann. Code of MD. Cts. &

Jud. § 3-2A-04(b) (Michie 1989)).

Limits on Attorney Fees

Under the traditional system, plaintiffs’

attorneys are paid on a contingency basis; i.e.,

they are paid only if they win (see ch. 1).

Attorneys collect on average 33 percent of the

plaintiff’s award (142). Since financial incentives play a role in lawyers’ decisions whether

or not to take on malpractice cases (1 12), the

number of malpractice suits might be reduced

by restricting fees. However, such reductions

might occur at the expense of further discouraging

attorneys from taking on meritorious cases whose

expected financial returns are low. About one-half

of the States either specify a limit on attorney

fees or authorize the courts to set attorney fees

(table 2-1; figure 2-2). In most cases, attorney

fee limits are not direct limits on the amount

attorneys can charge their clients. Rather. they

are limits on the portion of the damage award

that may be applied toward attorney fees. The

form of the limitation varies from State to State

(app. A; table A-6).

Costs Awardable in Frivolous Suits

At least 15 States have passed legislation

giving the courts authority to force the losing

party in a medical malpractice case to pay the

opposing party’s court costs and/or reasonable

attorney fees if the suit was frivolous, fraudulent,

or in bad faith. This applies to a very limited

number of cases, if any, since a case may ultimately be nonmeritorious without being frivolous.

These statutes are not to be confused with the

so-called “English Rule, ” in which the loser

pays the winner’s attorney fees, regardless of

the merit of the suit (4). OTA knows of only

one State that attempted to implement the

"English Rule," and that statute was repealed

by the legislature after it was discovered that

only relatively wealthy losers (i. e.. defendants)

were paying ( I 4).

Several tort reforms seek to limit physician

liability and create more predictability at the

outset as to what will constitute negligent

behavior. The most significant of these recent

changes is the development and use of practice

guidelines in determining the legal standard of

care. In addition, States have also limited physician liability by altering common law doctrines

of informed consent and res ipsa loquitur.

Judicial Limits on the Standard for Informed

Consent

Physicians need a patient’s consent prior to

treatment. For many years the adequacy of

the consent was judged by professional

standards (78). In 1972, two separate legal
30- Impact of Legal Reforms on Medical Malpractice Costs

,

‘=-----b--–” . —-‘

Source: Office of Technolo~ Assessment, 1993

.--”’

opinions allowed a patient to recover damages

resulting from medical care that met the

standard of care, because it was determined

that the patient would not have consented to the

care if all material information had been

provided. 8

Several courts moved to a more patientoriented standard for judging the adequacy of

informed consent. Some legislatures responded

with legislation that either codified a list of

information to be provided the patient, thereby

enabling physicians to develop standard consent

forms: or the legislation set forth the defenses a

physician could use when faced with claims

m“idngscde

Maximum Percentage

I No Statutory Limits

alleging failure to adequately inform the

9 patient (78). The latter statutes often establish

professional or customary standards of

disclosure as a defense and further require

the plaintiff to establish that a reasonable person

would not have undergone the treatment if he or

she had been fully informed of the risks (78).

(The plaintiff must also prove that the lack

of informed consent was the proximate cause of

the injury (78).

While the expansion of the informed consent doctrine in the 1970s may have led to

more claims, recent data indicate it is a minor

issue today in liability claims. 10
Chapter 2--Approaches to Malpractice Reform: States' Experience and New Ideas -31

Restricting the Use of Res Ipsa Loquitur

The legal doctrine of res ipsa loquitur (“the

thing speaks for itself”) allows plaintiffs with

certain types of injuries to prevail without having

to introduce expert testimony of negligence. The

plaintiff must prove only that the procedure or

incident causing the injury was under the

exclusive control of the physician and that such

injuries do not normally occur in the absence

of negligence (78). The classic case in which

res ipsa loquitur might be invoked is when a

clamp or sponge is left in a patient’s body after

surgery.

The doctrine of res ipsa loquitur is thought

to be very unpopular with the medical profession because it reduces the need for expert

testimony, allowing the plaintiff to reach the

jury without direct evidence of negligence

(14,78). However, expert testimony is often

not necessary because the doctrine largely

applies when the negligent act can be inferred

by common knowledge (66). When common

knowledge is not sufficient. the influence of

negligence can be informed and rebutted by

expert testimony (66).

As of 1989, 13 States had passed legislation either disallowing the application of res

ipsa loquitur in medical malpractice altogether

or limiting the circumstances under which it

can be applied (129).

Changing the Rules for Determining

Physician Negligence

The legal standard of care in a given case

is established through the expert testimony of

physicians--thus, courts defer to professional

judgment rather than some objective standard

to determine what was appropriate care in a

given case. Over the last three decades. the

customary standard has evolved from a “strict

locality” formulation (i.e.. only physicians in the

community could testify as to the standard of

care) to an “expanded locality” formulation

(i. e.. what a reasonable physician in a similar

specialty/community would do under the same

or similar circumstances). The exact legal

formulation of the standard varies by jurisdiction. Part of the rationale for abandoning the

strict locality rule was the difficulty of finding

physicians willing to testify against their local

peers and concern that the locality rule could

insulate a community of substandard care (79).

As such, expanding the locality rule would

theoretically increase the number of successful

plaintiffs’ cases.

The use of professional judgment to establish the legal standard of care often leads to a

courtroom “battle” between experts testifying

for the plaintiff and defendant. Critics contend

that lack of an objective and specific standard

of care makes the outcome of medical malpractice

proceedings unpredictable and consequently

encourages defensive medicine. Despite the fact

that a number of States have codified the legal

standard of care in medical malpractice cases,

these laws do not alter the existing standard of

care, but instead merely document that

physicians will be held to the standard of care

provided by their profession (1 15).

Using Clinical Practice Guidelines as

Evidence of’ the Standard of’ Care--Clinical

practice guidelines, published by physician groups

and, more recently, the Federal Agency for

Health Care Policy and Research, are increasingly

being looked at as possible standards for medical

care. Under the customary practice formulation,

clinical practice guidelines based on a reasonable

degree of professional consensus would presumably be valuable evidence of the applicable

standard of care. However, there are a number

of I imitations to the usefulness of guidelines in

deciding medical malpractice cases. First, existing rules of evidence limit the use of guidelines in establishing the legal standard of care.

Second, guidelines have only been written for a

small portion of medical practice; thus, not all

medical malpractice cases would be able to

invoke specific, relevant guidelines. In addition,
32- Impact of Legal Reforms on Medical Malpractice Costs

because guidelines often purposefully leave much

of the ultimate judgment to the physician

discretion, they may not be explicit enough to

be used as a rigid legal standard of care.

Under the current system, courts generally

bar guidelines from being admitted as evidence

under the “hearsay rule, ” which prohibits the

introduction of out-of-court statements as evidence (67). In these cases, guidelines would

only color the evidence to the extent that expert

witness testimony reflected their contents.

However, guidelines or medical textbooks that

are considered to reflect comprehensive analysis of scientific evidence and broad consensus

among members of the profession may sometimes

be admitted as evidence under the “learned treatise” exception to the hearsay rule (158, 159).

If recognized under this exception, the

guidelines generally have to be read into evidence in conjunction with expert testimony,

11 rather than be admitted as exhibits (77).

Once admitted, they carry no greater legal

weight than other expert testimony (67). In other

words, in the current system a guideline, if

admitted as evidence, cannot conclusively establish the standard of care in a particular case. The

guidelines can be rebutted by the expert witness

of the opposing party. However, if juries place

more weight on guidelines from authoritative

sources than on conflicting testimony from expert

witnesses, guidelines may play a greater role in

determining the outcome of a case than the

court’s legal instructions might suggest.

OTA has been unable to document how

often guidelines are actually used as evidence

in medical malpractice litigation, although studies

are underway to answer this question. OTA

knows of no studies that examine outcomes of

cases involving guidelines or the reactions of

juries to the use of guidelines as evidence.

In order to increase the role of guidelines

in determining physician negligence, three States--

Maine, Minnesota, and Vermont--have recently

passed legislation that accords greater weight

to certain guidelines in the litigation process.

In 1991, Maine began a five-year demonstration

project that makes State-developed guidelines

admissible as a defense in medical malpractice

proceedings (24 MRSA §§ 2972-2978 (1990)). 12

The statute permits physicians who elect to

participate in the demonstration to use these

guidelines as an affirmative defense in medical

malpractice trials and in pretrial proceedings.

Under the affirmative defense provision, use of

guidelines as evidence is no longer a matter of the

judge’s discretion. If a physician introduces the

guideline as a defense, the plaintiff must either

(a) prove that the physician did not follow the

guideline or (b) prove. through expert testimony,

that the guidelines are not applicable to the given

case. If the plaintiff is unable to do this, the

physician is not negligent.

Another provision of the Maine statute

prohibits a plaintiff from introducing the guideline

as evidence of the standard of care in an effort to

prove that the physician’s performance was substandard (24 MRSA § 2977 ( 1990)). This

provision was included to allay fears on the part

of physicians that the guidelines, instead of

serving to protect them from liability, would be

used against them. Some critics, however, claim

that this provision may be subject to challenge on

State and/or Federal constitutional grounds

because it selectively denies plaintiffs the use

of evidence that may be critical to proving

malpractice ( 132). A hearing of the constitutional

challenge will probably not occur for several

years. As of July 1993. the State’s largest

medical malpractice insurance carrier had not

yet received any claims for which the adopted

guidelines were relevant ( 18).

Minnesota recently passed legislation that

allows guidelines developed and/or adopted by

a special State commission to be used as an

absolute defense in malpractice litigation (95).13

Like the Maine statute, Minnesota’s law also bars

the plaintiff from introducing the guideline as

evidence that the physician failed to meet the standard of care. As of August 1993. the first round

of guidelines had yet to be officially approved in

Minnesota (45).
Chapter 2--Approaches to Malpractice Reform: States' Experience and New Ideas -33

Some patient rights advocates may oppose

the approach taken by Maine and Minnesota

because it offers no safeguard against “bad”

guidelines--i. e., the plaintiff cannot contest the

reasonableness of the guideline itself (106).

Some critics contend that the use of guidelines

as rigid legal standards may be problematic due

to the continual evolution of medical practice

and the inability of written guidelines to reflect

changes in a timely manner (56).

Vermont’s approach is more moderate,

amounting to a change in the rules of evidence that will allow a wider variety of

guidelines--e.g., guidelines developed by health

care professional groups, the Federal government,

or health care institutions--to be directly admitted

as evidence of the standard of care by either the

plaintiff or the defendant in future mandatory

medical malpractice arbitration proceedings (18

V. S. A.. part 9, chapter 21 § 1 (1992)). 14 This

provision would make it easier to introduce

guidelines as evidence. but would not give

them any greater legal weight than other expert

testimony.

In an interesting departure from the strategy

embraced by Maine, Minnesota, and Vermont,

legislation recently passed in Maryland mandates

the development of State guidelines but explicitly

prohibits them from being introduced as evidence

by any party in a malpractice suit (80). Florida

recently adopted legislation authorizing the development of guidelines and encouraging consideration of their use in the future as legal standards of care (43).

One concern that State guidelines initiatives

such as these raise is the potential for conflict

between national, State, and even institutional

guidelines. Most of Maine’s guidelines were

modeled closely from nationally recognized

standards, but others were developed de novo

by Maine. physicians (36) and could be construed as setting a precedent for reconversion

to a more local standard of care. Developers

of guidelines in Minnesota anticipate using national guidelines as models and amending them

if necessary to conform to the realities of health

care delivery in the State (45). In Vermont, the

statutory description of guidelines could be

interpreted as including even written institutional protocols.

Guidelines in theory should be able to help

clarify the standard of care. However, the

recent expansion of guideline-writing efforts

has produced hundreds of new guidelines, some

of which present conflicting information. If

courts and legislatures are not selective about

which guidelines are introduced as evidence,

these conflicts may find their way into the

courts and further confuse rather than clarify

the process of determining negligence.

Limiting Malpractice Awards

Many States have adopted reforms

limit the amount the plaintiff can recover

that

in a

malpractice suit. These reforms may limit the

absolute amount that can be recovered. the

amount of certain types of damages, the amount

that can be paid out in one lump sum, or limit a

single defendants liability

Collateral Source Offsets

Under traditional rules

defendant may not introduce

of evidence, the

into evidence the

fact that the plaintiff has insurance (health, disability, etc. ) covering some of his or her losses.

Consequently, the plaintiff may be able to recover

both from the defendant and from other

“collateral sources ” of compensation.

Very often the traditional collateral source

rule does not result in double payment because

most health and disability insurance policies

have a provision requiring the plaintiff to reimburse the insurance company for any such

payments received from the tort system (3,4).

This provision is called a right of subrogation.

For example, the Federal government requires

that medical expenses paid by Medicaid and

Medicare be reimbursed from tort awards
34- Impact of Legal Reforms on Medical Malpractice Costs

(42 U.S.C. § 2651 (1992)); however, Social

Security Disability Insurance, the primary public

disability program, does not have subrogation

rights (137).

If health and disability insurers collect the

tort awards from plaintiffs, the net effect of the

collateral source rule is to make medical

malpractice insurers responsible for the costs

of medical injuries caused by physicians’ negligence. OTA has not examined whether health

and liability insurers exercise their right of

subrogation in most cases.

When double payment does exist, it appears to some to be a windfall. Yet, collateral

source payments result from the plaintiff’s

investment in insurance. Decreasing the defendant’s liability in such cases would allow the

defendant to unfairly benefit from the plaintiff’s investment, reducing the deterrence effect

of the award. 15 In addition, plaintiffs must

pay attorney fees out of their awards, and

juries are not permitted to compensate successful plaintiffs for attorney fees.

Concern over rising malpractice insurance

rates in the 1970s and 1980s led some States to

amend the collateral source rule so as to shift

some of the burden of paying for medical

expenses from malpractice insurers to health

insurers. The collateral source rule can be

amended in one of two ways. First, the jury

can be permitted to hear evidence of the plaintiff’s collateral sources and decide whether or not

to reduce the award accordingly (discretionary

collateral source offset). Or, the judge or jury

can be required to offset the award by the

amount available from collateral sources once

those sources are entered into evidence

(mandatory collateral source offset).

At least 30 States have amended the traditional collateral source rule (table 2-1; figure 2-

3). Approximately 19 States have a mandatory

collateral source offset, but these provisions are

often triggered only if the defendant enters

evidence of the plaintiff’s collateral sources,

In the other 11 States that have amended the

rule, collateral source offset is discretionary

(table 2-1; figure 2-l). In five additional States,

collateral offset provisions were passed but

later overturned in the courts, but in two of

these States a new statute was passed correcting

the constitutional deficiencies (table 2-1 ).

A number of these statutes have significant

exceptions; for example, excluding the plaintiff’s

health or disability insurance contract if the

contract already contains subrogation rights (15 1).

In addition, OTA identified at least two States

that do not include as collateral sources most

types of insurance coverage, for example,

disability insurance or insurance that is purchased by the plaintiff. 16

Caps on Damages

The most direct way to limit the payment per

paid claim is to set limits on damage awards. As

mentioned earlier, malpractice damage awards

have three components:

direct economic losses, such as health care

expenses, job-loss expenses, and other direct consequences of the injury;

noneconomic damages (often referred to as

damages for “pain and suffering”) such as

payments for physical and emotional pain,

suffering, emotional distress, mental anguish,

disfigurement, loss of enjoyment, loss of

Companionship, and other nonpecuniary

losses; and

punitive damages, awarded in cases where

the defendant conduct is intentional,

malicious. or outrageous, with a willful

disregard for the plaintiff’s well-being.

(Punitive damages are rarely awarded in

medical malpractice cases. )

There are two different types of damage

caps: those that cap noneconomic damages

(i.e., damages for pain and suffering) alone; and

those that put a total cap on both economic

and noneconomic damages. 17 Several States
.

Chapter 2--Approaches to Malpractice Reform: States' Experience and New Ideas -35

,.

‘( --=- .!

*#-

*.C+ e+

,. - * f. I

L .- ——— -

Source: Office of Technology Assessment, 1993.

have capped punitive damages, but such damages

are rarely awarded in medical malpractice cases

(3,4,94,107). Capping them is therefore unlikely

to have a significant impact on medical malpractice costs.

Statutory limits on damage awards are

highly controversial and have been declared

unconstitutional in some States. At least 15

State supreme courts have overturned caps on

damages on State constitutional grounds, .

18 and

the State legislature in two other States repealed the provision (app. A, table A-2).

A number of other States have upheld caps on

damages. 19 (See App. B for a detailed discussion of constitutional challenges to State tort

reforms. )

Total Damage Caps--Only eight States

have a cap on total damages (economic and

noneconomic damages combined) (table 2-1:

figure 2-4). Permitted damages range from

$500,000 to $1 million. Four of these States

also have PCFs.

Noneconomic Damage Caps--The most

frequent type of damage cap is on the noneconomic component of an award. Large

noneconomic damage awards are concentrated

in a handful of what may be the more serious

cases. For example, in a 1984 study of paid

claims for which data on noneconomic losses

were available,20 2.1 percent of cases accounted
36- Impact of Legal Reforms on Medical Malpractice Costs

t ,’

,-

., - J -

L —.

Source: Office of Technology Assessment, 1993.

for 62 percent of pain and suffering damages

awarded for the entire sample of cases in which

an indemnity payment was made (142).

Losses for pain and suffering are very difficult to quantify and juries are provided no

clear standards for determining them, Critics

contend that the emotional desire of the jury to

do something for the victim often causes unduly high awards (15).

OTA identified 14 States that place some

limit on noneconomic damages (table 2-1; figure 2-2). These limits range from $250,000 to

$1 million dollars, and in a number of States

there are exceptions to the limit (see app. A).

The Michigan cap on noneconomic damages

does not apply in cases in which the patient

has an injury to the reproductive system or

,---- >.-

..-.

—

$

, Patient Compensation

., Fund

Economic &

Noneconomic Cap

[ I No Statutory Limits

has lost vital bodily function. As a result of

these exceptions, the cap has yet to apply to

a single malpractice case ( 154). In Massachusetts, noneconomic damages are capped

at $500,000, but judges can grant exceptions in extreme cases (Mass. Ann. Laws

ch. 231 § 60 H). Finally, a number of States

impose separate damage caps on claims in which

the defendant is a public facility or a public

facility employee.

Florida has an unusual provision in which

the cap is linked to the decision to arbitrate. If

a defendant refuses a plaintiff’s request to arbitrate, there is no limit on damages in a trial,

but if the plaintiff declines a defendant’s

request to arbitrate. then the award at trial is

limited to economic damages plus noneconomic
— ..—

damages of $350,000 per incident (Fla.

Stats. § 766.209 (1991)). Florida also limits

noneconomic damages in arbitration to only

$250,000 (Fla. Stats. $766.207 (1991)).

Guidelines for Noneconomic Damages--

Some malpractice researchers propose to

rationalize noneconomic damage awards by

providing the jury specific guidelines for determining pain and suffering based on the age of

the victim and severity of injury. 21 One proposal

would fix the level of damages once the jury

determined severity and age. Alternatively, the

jury could be given ranges within the categories

and have the discretion to go outside these

ranges ( 1 5). If the jury’s assessment deviated

substantially, it would provide reasons for its

decision, thereby facilitating judicial review.

Another proposal is to provide the jury with

typical injury scenarios and associated dollar

values . These would be nonbinding benchmarks but could serve to guide the award and

review by trial and appellate judges. In each of

these proposals, the proposed ranges would be

derived from previous cases (15). None of these

proposals have been tried in the States.

Periodic Payments

One way to help reduce the impact of large

awards on malpractice insurers is to allow

damages to be awarded according to a schedule

of periodic payments. If a victim is severely

injured, the damages are based on medical and

other expenses that will be incurred over a

lifetime. If the insurance company can pay out

the award as the expenses are incurred, the net

cost of the malpractice award will be lower.

This approach to structuring awards also reduces

the risk that the plaintiff will deplete funds that

are intended to be used to pay future medical

and economic costs (152).

OTA identified 14 States with a provision

mandating periodic payments of future

economic damages if damages exceed a threshold

level (table 2-l). In most cases the threshold is

$100,000 to $250.000. Another 16 States

allow for, but do not mandate, periodic

payments (table 2-1 ). In these States, periodic

payment can be requested by the par-ties; in

others, it can be imposed at the court

discretion. The remaining States (including

the District of Columbia) have no provision for

periodic payments, although in two States provisions were passed and later overturned in State

courts (table 2-1 ).

Reform of Joint and Several Liability

To ensure the plaintiff fully recovers damages for his injury, States have traditionally

held tort defendants who are jointly responsible

for an injury “jointly and severally ” liable

regardless of their individual degree of responsibility (3,4). Joint and several liability means

that a plaintiff can sue all responsible defendants and recover from each one in proportion

to their fault (i. e., joint liability) or the plaintiff

can sue any one defendant and recover the total

amount of damages, even if the defendant is

only partially responsible (i. e., several liability) (78). This does not mean the defendant

will ultimately pay the entire amount because

he or she can sue the other defendants for their

share (78). This rule effectively allocates the

risk of one defendant insolvency to the other

defendants, rather than to the plaintiff. In medical

malpractice, insolvency may not be a critical

concern because most physicians are insured.

About two-thirds of the States have modified the traditional joint and several liability

doctrine (151). In some States, several liability

was eliminated. More often, however, the

statutes require that several liability be limited

depending upon the degree of the defendant’s

or plaintiff’s fault or the ability of other

defendants to pay the claim (151). In Iowa,

for example, if the defendant is less than 50

percent responsible for all damages, he or she

is liable only for his or her proportion of

damages: however, if the defendant's

responsibility exceeds that level he or she can

be held severally liable for the entire amount of
38- Impact of Legal Reforms on Medical Malpractice Costs

damages (Iowa Code § 668.4 (West 1987)).

A number of States make several liability

conditional on the defendant’s meeting a certain

threshold of responsibility (150,151).

ALTERNATIVE DISPUTE RESOLUTION

Although most malpractice cases do not

reach trial, the civil litigation system is often

criticized for being slow, expensive, and

unpredictable. The best available estimate is

that plaintiffs receive roughly $0.50 for every

$1.00 spent by insurers on processing a

malpractice case, with a large portion of the

administrative costs being spent on legal

fees. 22 The expense is likely to increase with

the length of the proceedings (127), and trials

can add significant costs. A recent review of

malpractice defense costs in 45 malpractice

cases that went to trial in North Carolina found

that close to 53 percent of the expense was

spent preparing for the trial (pretrial

conferences, preparation of trial exhibits,

meeting with witnesses immediately prior to

trial and related actions) or in trial (87). The

remaining money was spent in discovery

(uncovering and analyzing evidence, interviewing

experts and witnesses, taking or defending depositions, etc. ) (87).

The high cost of malpractice trials may also

raise the amount a defendant is willing to offer

in a settlement, because settlements reflect in

part the expected amount at trial minus the

savings possible from avoiding trial .23 The

high cost of a trial may create incentives for

plaintiffs to settle for less in order to avoid the

costs and risks of a trial. In one study of 5,832

claims closed between 1974 and 1976, smaller

claims (i. e., less serious injuries) were more

frequently dropped with no payment than were

larger claims (34). Plaintiffs with lower potential awards may not be able to afford the

high fixed costs of pursuing a claim through

the legal system (34).

As a broad remedy to these problems,

States have established procedures that allow

the replacement of the trial and jury system

with a less formal process involving professional decision-makers. These approaches are

collectively referred to as alternative dispute

resolution (ADR) procedures. In addition, the

AMA and 31 national medical specialty societies have proposed a sweeping reform that

would remove malpractice claims from the

civil court system completely, substituting an

administrative process of dispute resolution

(hereinafter “AMA/SSMLP administrative proposal”).

The goals of ADR are several: to use a

more experienced decision-maker than a lay

jury (although a lay person may be chosen as

one of the decision-makers), to reduce the cost

of resolving a dispute, to reduce the anxiety of

formal legal proceedings, to reduce the costs of

resolving small claims, and to efficiently screen

out nonmeritorious suits (88). The actual procedures used to reach these goals are diverse.

States have permitted several forms of ADR:

voluntary binding arbitration, court-annexed

nonbinding arbitration, mediation, and, to a limited extent, summary jury trials. Arbitration is

the form of ADR that has been the subject of

most legislative activity. On the whole, however, ADR has not been used extensively in

malpractice cases. In addition, the AMA/SSMLP

administrative proposal has yet to be

implemented by any State. Each of these

alternative approaches is discussed in the following sections. Forms of alternative dispute

resolution that have not been used extensively

in malpractice or otherwise are summarized in

box 2-A.

Voluntary Binding Arbitration

Binding arbitration (i.e., where the arbitration

replaces the trial) is typically a voluntary process.

The alternative approach, to make binding arbitration mandatory, raises serious constitutional
Box 2-A--Selected Approaches to Alternative Dispute Resolution

Type of ADR Procedure Extent Used in Medical Malpractice

Neutral Evaluation Parties present cases to neutral attorney Used frequently in Federal courts and

for assessment of merits. If parties do therefore little impact on medical

not settle as a result of assessment, they malpractice litigation, which is typically

can proceed to trial and the neutral brought in State courts,

evaluator’s opinion is kept confidential,

Court-annexed Court can require parties to submit their Most programs limit the use of this

Nonbinding case to arbitration prior to proceeding to procedure to cases with expected

Arbitration trial, The decision of the arbitrator(s) is damages below a certain threshold,

not binding on the parties, typically ranging from $10,000 to

$50.000. Alleged damages in malpractice cases are rarely so low, The one

exception is Hawaii, where court-ordered

arbitration applies to all civil tort actions

with potential damages of $150,000 or

less (Hawaii Rev, Stats, Sec. 601-20

(1992)) However, medical malpractice

cases may bypass arbitration if a

decision is rendered under Hawaii

mandatory medical malpractice

screening panel (Hawaii Rev, Stats. Sec.

671-16.5 (1992)).

Summary Jury Trials An abbreviated trial (usually less than Not often used in medical malpractice,

one day) using a summary of the

evidence. Lay jurors render a decision

and make a finding for damages;

however, their decision is not binding on

the parties, The parties have the

opportunity to interview the jury

members and assess the strengths and

weaknesses of their case,

Mediation Parties bring their case before a Some States encourage mediation of

mediator whose role is to facilitate malpractice disputes: others make

negotiation, not to make a finding on mediation available for all civil cases.

the merits, The mediator is not Mediation has been used extensively in

constrained by legal principles, but family law, but not in medical

strives instead to find a practical malpractice, Wisconsin appears to be

solution that both parties will accept, It the only State that requires pretrial

is not an adversarial process mediation of medical malpractice cases

(Wis. Stat, Sec. 655 445).

SOURCES. T.B. Metzloff, “Alternative Dispute Resolution Strategies in Medical Malpractice, ” Alaska Law Review 9(2):429-457.

1992; T.B, Metzloff, “Reconfiguring the Summary Jury Trial,” Duke Law Journal 41 (4):806-866, 1992

Issues because federal and State constitutions malpractice cases) to go through nonbinding

grant plaintiffs a right to a jury trial (see arbitration before proceeding to court (see

app. B for discussion of constitutional issues). box 2-A). This is more analogous to pretrial

Some States do require or allow courts to order screening, however, because the parties still

smaller cases (rarely including medical have the option of proceeding to trial.
40- Impact of Legal Reforms on Medical Malpractice Costs

The agreement to arbitrate can be made

after the injury occurs or before care has been

rendered. In all States, voluntary binding arbitration is available upon agreement after the

injury. The terms of the agreement will likely

specify how arbitrators are to be selected and

other procedural rules. The arbitrator(s) will

hear evidence and render a decision in lieu of a

judge or jury. Typically, the decision of the

arbitrator is final and is not appealable except

in limited cases, such as fraud. 24

Few claimants agree to arbitrate after the

injury has occurred. This is not surprising

because the relationship between the parties has

broken down and they may not want to

negotiate an arbitration agreement. For this

reason, having an agreement to arbitrate in

place prior to an injury may better promote the

use of arbitration.

Some State courts have been reluctant or

unwilling to enforce pretreatment arbitration contracts because of the perceived

differences in bargaining power between the

. providers and patients (88). 25 California courts

were an exception, As early as 1965, the

California Supreme Court upheld an HMO’s

pretreatment arbitration clause which the HMO

imposed as a condition of membership (See Doyle

v. Guiliucci, 404 P.2d 1 (Cal, 1965)). More than

a decade later, the California Supreme Court

upheld the application of Kaiser Permanence’s

arbitration clause in the case of a member who

claimed that he did not explicitly agree to the

provision when he selected his employer-based

health care plan (Madden v. Kaiser Foundation

Hospitals, 552 P.2d 1178 (1981)).26

Fifteen States have specific statutes that

authorize voluntary binding arbitration specifically for medical malpractice cases (table 2-1;

figure 2-5). These statutes authorize pretreatment arbitration agreements but many have

specific disclosure requirements or allow the

patient to revoke the agreement within a certain

period after signing; in some cases after an

injury has occurred (143). OTA found only

two State statutes that specifically prohibit pretreatment arbitration agreements for medical

malpractice (Neb. R.R.S. § 25-2602 (Lexis

1993); S.C. Code Ann. $15-48-10 (Lexis 1993)).

In States without specific malpractice arbitration

statutes, arbitration is still an option--either under

Uniform Arbitration Act (UAA) procedures (139)

or under a general provision of the State’s own

crafting. The enforceability of pretreatment

agreements in these States is governed by the

statutory language and case law.

Whether having a specific statute for malpractice arbitration promotes arbitration or

inhibits it is unknown. The UAA provisions

are very genera], whereas some of the State

statutes impose restrictive conditions--e. g., on

the number of arbitrators, the selection of

arbitrators, or the enforcement of arbitration

agreements. These restrictions are probably

designed to protect plaintiffs, who may have

less bargaining power, but an unintended result

may be to remove some of the flexibility of

arbitration (88.89).

Of the 15 States with specific malpractice

arbitration statutes, only Michigan has a formal

program to encourage arbitration. The Michigan

law requires all hospitals that are not self-insured

to offer patients the opportunity to sign a pretreatment arbitration agreement. The patient must

be provided a booklet on arbitration and be

informed that by signing the agreement he or she

is waiving the right to a jury trial. The patient is

also given the right to revoke an arbitration

agreement 60 days after discharge (the hospital

has no option to revoke) (78; Michigan Comp.

Laws $$500.3051-3062, 600.5033-5065 (West

1987)).

Participant ion has been disappointing .27

Only one-half of Michigan hospitals must participate and the remaining hospitals apparently

see no benefit in entering the program and
Chapter 2--Approaches to Malpractice Reform: States' Experience and New ideas -41

“e .+’”

. ,/

1— ––.– .-—— -- —————-

Source : OffIcc &Technology Assexment, 1993.

spending resources to train personnel to offer

arbitration agreements and to learn the program’s

requirements (143). While the administrative

costs of setting up an arbitration program may

not be significant in terms of total operating

costs, the hospitals apparently concluded that

the investment would not save money (143).

Physicians say they are reluctant to offer patients

pretreatment arbitration agreements because they

are uncomfortable discussing malpractice at that

point and are concerned that such a discussion

may undermine patients’ confidence in their

abilities (143).

In sum, despite the fact that arbitration is

specifically authorized for medical malpractice by

statute in 15 States and is allowed in all others,

very few medical malpractice cases are resolved through arbitration (88, 143),2

8 Why

the reluctance to arbitrate? Some critics attribute

.-”

Specific I%wkkrn

for hkdcd Malpractice

I Geneta.1 Pmvkion that am be applied

I ‘w Medul Malpractice

the reluctance to plaintiffs attorneys, who

believe the choice of forum is a strategic decision

and may think arbitration is appropriate only for

smaller claims (69). Defense attorneys may

also have strategic reasons for preferring trials.

For example, arbitrated decisions are not

generally appealable, except in cases of fraud.

The ability to appeal an adverse decision may

be an opportunity that both the plaintiff and the

defense counsel are reluctant to relinquish (69).

AMA/SSMLP Proposed

Administrative System

The AMA/SSMLP administrative proposal

would remove malpractice cases from the civil

jury system and set up an administrative board

to hear malpractice claims (5). To date, no State

has adopted such a system.
42- Impact of Legal Reforms on Medical Malpractice Costs

Under the AMA/SSMLP’s proposal, State

medical boards would be established to discipline

doctors and resolve medical malpractice cases.

The AMA/SSMLP’s proposal has several possible

advantages over the present system. First, filing

a claim would be greatly simplified, and legal

counsel would be provided to claimants who

could not afford counsel. Second, the boards

would be given authority to change certain legal

rules, for example, change the definition of the

standard of care, limit attorneys’ fees, and use

guidelines to promote consistency in damage

awards. Finally, the proposed system would tie

medical malpractice to the physician licensing and

disciplining process, thereby using the medical

malpractice system more directly to monitor

physician quality,

Hearing examiners and the medical boards

could be given significant control over the process

and could create strong incentives for not accepting

settlement offers and pursuing oral hearings.

Review by the judiciary would be very limited (5).

Such a system might facilitate hearings on many

more claims, but the nature of the process would

be greatly abbreviated and might interfere with

the full development of the plaintiff’s case.

Questions have been raised whether the

AMA/SSMLP proposal would, instead of

increasing efficiency, create a new bureaucracy

and require a massive expenditure of public funds

(90). Consumer advocates express concern about

having quality control be left largely to State

medical licensing boards (46). To date, State

Medical Licensing Boards have little experience

with disciplining doctors with respect to their

clinical competence.29 A new formal system

would also likely be subject to legal challenges

(91). In addition, such an agency could become

too responsive to physicians’ viewpoints, given

that physicians are likely to be the agency’s

most organized constituency (156).

NO-FAULT MEDICAL COMPENSATION

Every malpractice case requires a determination of whether or not the physician’s

treatment fell below the standard of care of his

or her peers and whether the physician’s actions

caused the patient's injury. This fault-based

system is expensive and subject to error.

Furthermore, a significant number of people

who are injured as a result of negligent medical

care do not seek redress in the legal system

(17,29). The time and expense of pursuing a

claim may be a factor in this decision (see ch. 1).

Almost all of the reforms described earlier

tinker with certain aspects of the process of

determining fault. However, some critics of

the existing system question whether it is

necessary and/or appropriate to base compensation for medical injury on a finding of negligent

fault. These critics advocate eliminating

negligence as a criterion for providing compensation to victims injured by medical care.

Under a no-fault system, some or all injuries

caused by medical care (iatrogenic injuries)

would be compensated regardless of whether

the physician’s conduct fell below a standard of

care. The intent of a no-fault system is to

compensate as many victims as possible for

harm done as a result of medical care. By

eliminating the cost of determining fault and

restricting damages, such a system may be able

to compensate more victims at a lower cost.

To compensate for the loss of the deterrent

effect of the fault-based system, a no-fault

system would be coupled with an enhanced

quality control system to monitor and minimize

physician error.

No-fault eliminates the question of negligence, but the question of causation (i.e., was

the injury caused by medical care?) remains.

As discussed in chapter 1, causation in the

legal sense means that the physician’s conduct

was more likely than not to have caused the

injury. This must be proven with a preponderance of the evidence. This may not always be

a simple question to answer, however, because

adverse medical outcomes are not necessarily

caused by medical treatment, but rather may

result from an underlying medical condition (65).

By comparison, in workers’ compensation, the

largest no-fault injury compensation scheme in
Chapter 2--Approaches to Malpractice Reform: States' Experience and New Ideas -43

the United States, the fact the injury was cause

by the work environment is often more

obvious.

30 As a result, few medical no-fault

proposals are pure no-fault proposals. Instead,

they attempt to identify a prescribed set of

medical injuries that can be addressed through

a no-fault compensation system.

State Experience with Limited No-Fault

Systems

To date, only two very limited no-fault

programs have been established--in Virginia

and Florida.3

1 Both programs were designed

to address only birth-related neurological

injuries. The cause of neurological damage in

infants is not always clear,32 and it may be

even more difficult to establish whether or not

the injury was preventable. Yet according to the

American College of Obstetrician and Gynecologists, such injuries accounted for 31 percent of

claims against obstetricians (103).33 Obstetric

providers, who see these claims as unpredictable, may take a number of defensive measures

of debatable efficacy in the hope of reducing

their risk of suit (60). These reasons, coupled

with high malpractice insurance premiums,

make obstetric cases a good testing ground for

no-fault programs.

Virginia--The Virginia Birth-Related

Neuro-logical Injury Compensation Act was

passed in 1987. The medical societies in

Virginia had been working on a no-fault proposal

for several years; however, the impetus for

legislation came from a Federal district court’s

ruling (later overturned) that Virginia’s cap on

damages was unconstitutional, thereby letting

stand an $8.3 million verdict against an

obstetrician, 34 That decision led malpractice

insurers in the State to place limits on malpractice insurance coverage for obstetricians and

other practitioners (38, 136). In addition, there

were reports of obstetricians limiting their

involvement in high-risk cases or withdrawing

from obstetric practice altogether (38).

To be eligible for compensation under

Virginia’s system, the claimant must establish that

the infant’s injury:

was to the spinal cord or brain;

was caused by a deprivation of oxygen or

mechanical injury that occurred in the course

of labor, delivery, or resuscitation in the

immediate post-delivery period in a hospital;

rendered the infant permanently “motorically

disabled” and developmentally or cognitively

disabled such that assistance in all activities

of daily living is required: and

was not caused by congenital or genetic

factors, degenerative neurological disease,

or maternal substance abuse (Va. Code

Ann. § 38.2-5001 (1992)).

The injury must have been caused by a physician who participates in the program (see

below) or at a participating hospital (Va. Code.

Ann. $38.2-5008 (1992)).35

Physicians and hospitals participate in the

program by their own choice. As of 1992, 75

percent of obstetricians and 38 percent of hospitals in Virginia were participating (44, 122),

Claims for compensation are filed with the

Virginia Birth-Related Neurological Injury

Compensation Fund (hereinafter the “Fund”),

which is funded through annual assessments

on physicians (primarily obstetricians) and

hospitals .36

A claimant files a claim with the Workers

37 

Compensation Commission. - The claimant also

serves a petition on the Fund, which administers

the program. The Fund has 30 days from

receiving notice of the claim to respond to the

Workers Compensation Commission on the

issue of whether the injury falls within the

definition. The Fund investigates the claim
44- Impact of Legal Reforms on Medical Malpractice Costs

itself, sending it to its medical experts. If the

Fund determines that the injury is compensable

under the act, the Workers Compensation

Commission Board will issue an order without a

hearing .38 The case is also sent by the

Workers Compensation Commission to a

medical review panel consisting of three

qualified and impartial physicians. The panel

reviews the case and makes a recommendation to

the Workers Compensation Commission as to

whether the injury falls within the statutory

definition. If the Fund does not determine that

the case falls within the act, the Commission

holds a hearing in which the panel’s recommendation is likely to be given significant

weight. although it is not determinative (Va.

Code Ann. § 38.2-5008(6)(B) (1992); (38)).

Once it is determined that an injury falls

within the definition, compensation is determined and payment made in accordance with

statutory provisions. The plaintiff does not

have the option of an alternative remedy if the

delivery was performed by a participating

physician in a participating hospital .39 There

is opportunity to request that the Commission

review the evidence, and final appeal may be

made to the Virginia Court of Appeals (Va.

Code Ann. § 38.2-5011 (1992)).

Claimants have up to 10 years to initiate a

claim, but once a claim is brought, a hearing

must be held within 120 days. The process is

designed to take a maximum of 5 months.

Compensation is limited to economic damages,

collateral sources of payment are offset, and

payments are made periodically (rather than in

a lump sum). By the end of 1992, only four

claims had been brought under Virginia

program (1 13), well below the 40 per year

originally predicted by the Virginia State

Medical society (44). The balance of the Fund

in 1993 was approximately $53 million (122).

To ensure continued quality assurance in

obstetrics cases, the Virginia statute requires

that all cases reported to the Commission be

automatically referred to the Board of Medicine

and the Department of Health, which have

licensing and disciplinary authority (respectively)

over physicians (Va. Code Ann. § 38.2-5005

(1992)). The Medical Board may (but is not

obligated to) examine the patterns of claims

brought and may use these cases to develop

professional standards (38).

Florida--Legislation authorizing the Florida

Birth-Related Neurological Injury Compensation

Fund was passed a year after Virginia’s and is

similar to Virginia’s in many respects. Florida’s

program, however, applies only to live infants

over 2500 grams who are both “rendered permanently and substantially mentally and physically

impaired. ” Unlike Virginia, it is not required

that the infant need assistance in all activities

of daily living. Florida limits the time to tile a

claim to 5 years. As in Virginia, compensation

is limited to medically necessary economic

damages that are paid as incurred. Florida,

however, provides for periodic payment of up

to $100,000 to the parent or legal guardian of

the infant.

Participation in the program is optional for

physicians, but about 90 percent of all Florida

obstetricians were participating as of January

1993 (37). All private hospitals are required to

contribute to the Fund through a tax assessment, but they only benefit from its protection

when the physicians practicing in the hospital

are participants. If a delivery in the hospital is

made by a participating physician and the

infant’s injuries fall under the statute. the exclusive remedy is against the physician; the

hospital, or any other person or entity that

participated with the labor, delivery, or postdelivery resuscitation, cannot be sued (Fla.

Stat. § 766.303 ( 1991)). If the physician is not

participating, however, the hospital is not

protected from liability. Not surprisingly, some

hospitals pay the assessments of the physicians

delivering in their hospitals or require their

physicians to participate (37)--a fact that may explain the relatively higher level of participation

in Florida compared with Virginia.

The Fund was seeded with $40 million in

appropriations at the outset and is maintained

through annual assessments on physicians and
—.——— —

Chapter 2--Approaches to Malpractice Reform: States Experience and New Ideas -45

hospitals .40 Currently the Fund receives

approximately $16.3 million in premiums

annually. Only $3.6 million comes from obstetricians; $7.7 million comes from nonparticipating

physicians and approximately $5 million comes

from hospitals (37). As of August 1993, 69

claims had been filed under the program (37).

Accelerated Compensation Events

Both the Virginia and Florida no-fault

programs base eligibility for compensation on a

narrow, adverse, clinical outcome. One

no-fault proposal would take this approach--

defining specific medical outcomes that are

compensable--and apply it to many other areas

of medical practice. Under this proposal

certain kinds of adverse medical events or

injuries, called “Accelerated Compensation

Events” (ACES), would be compensated under

a no-fault system. ACES are defined as

adverse patient outcomes that are generally

avoided by good medical care (1 34). Using

defined, specific, clinical outcomes in a nofault compensation system should eliminate the

need to determine causality (134). ACES

would be handled as if they were part of a

compensation insurance system, thus reducing

the costs of the disposition.

A clear example of an ACE would be the

discovery of a foreign object left in a patient

who had recently undergone surgery. In other

cases, the question of avoidability is not so

clear, and judgments would have to be made at

the outset as to which injuries would be eligible

for compensation (1 34).

As proposed, injuries that fall outside of

the ACE system could be pursued under the

tort system or another alternative dispute process. Thus, the overall impact on the medical

malpractice system of using ACES would

depend on their ability to move a

significant number of adverse events into the

no-fault compensation system.

One way to maximize the impact of an

ACE system is to target it to high-litigation areas

of medical practice. Tancredi and Bovbjerg developed a list of ACES for obstetrics/gynecology.

general surgery. and orthopedic surgery (133)--

three specialties that accounted for 33

percent of medical malpractice claims in

1984 and approximately 48 percent of

payments (142). The list includes 48 ACES

for obstetrics/gynecology, 62 for general

surgery, and 36 for orthopedic surgery. The list

was developed using actual claims data.41

NEW REFORM PROPOSALS

Enterprise Liability

Recent attention has centered on the

concept of “enterprise liability” as a malpractice reform that might be incorporated into

a larger health care reform initiative. Under

enterprise liability, responsibility for defending

malpractice claims is placed on institutions or

organizations that provide care instead of on

individual doctors. Enterprise liability has

been suggested as a reform that is compatible

with a system of managed competition. in

which comprehensive health plans are

responsible for all care delivered to their

enrolled patients. or with a no-fault system in

which the hospital or HMO pays for all injuries

that occur within the institution (156). Yet it

has also been suggested as a malpractice reform

that makes sense even without these reforms.

About 80 percent of malpractice claims arise

from care given in hospitals ( 142), and the

hospital could be the “enterprise” responsible

for this care (1).

Enterprise liability is not a new concept.

Pieces of the idea are in practice today in some

large health care organizations. HMOs that

employ physicians directly (as in staff-mode]

HMOs) bear legal responsibility for their staff

physicians,

42 although claims can still be
46- Impact of Legal Reforms on Medical Malpractice Costs

instituted against the specific physician.

Typically, HMOs indemnify their staff physicians

and purchase malpractice insurance on their

behalf. Some large hospitals have joined with

their physician staffs to buy a malpractice

insurance policy that requires a unified

defense (84).

But the distinguishing feature of enterprise

liability is that the plaintiff would not be able

to name an individual physician in a suit.

Although it is likely the physician would still

be called to testify should the case go to trial,

his or her role would be more limited, both in

time and expense, than it is presently. Moreover,

not being personally named in a suit may remove

some of the anxiety or stigma that a malpractice

suit reportedly causes. Yet, because a finding of

negligence on the part of the physician would

still be made, enterprise liability may preserve

some of the deterrent effect of a medical

malpractice suit.

According to its proponents, the potential

benefits of enterprise liability are three-fold.

First, it would create stronger incentives for

institutions (be they hospitals, HMOs, or health

plans) to expand their already existing quality

assurance and risk management programs to

incorporate risk management activities for doctors

practicing under their plans.43 Institutions are in

a stronger position than small medical practices to

improve the quality of care through quality

assurance and risk management programs, and

insurance premiums can be experience-rated at

the institutional level. Reduction of medical

injuries could save both malpractice and

general health care costs.

Second, enterprise liability might reduce

insurers’ administrative costs by reducing the

number of individual policies that must be

written and the number of separate claims that

must be resolved .44 Reducing the number of

defendants in a case may also make it easier to

settle or use alternative dispute resolution

procedures (69, 156).

Third, enterprise liability instituted in an

environment of managed competition could

potentially reduce defensive medicine, as health

plans establish practice guidelines reelecting the

tradeoff between cost-effectiveness and

malpractice risk.45 Again, this may begin to

happen even in the absence of enterprise liability.

Enterprise liability also has limitations.

Perhaps the most important is that, in the existing

health care system, enterprise liability would not

cover all patients. Thus, physicians would still

be required to carry malpractice insurance for

the portion of claims arising from care given

outside the purview of the organization. This

could eliminate potential savings from consolidating insurance. Also. the location of the

alleged negligent care (or failure to render care)

would sometimes be unclear, possibly leaving

the door open for expensive proceedings,

Enterprise liability could lead to an increase in

suits if patients are more comfortable suing a

corporation instead of their physicians.

In addition. the potential reduction in

injuries due to enhanced quality control

may be overstated. Because many large

HMOs and hospitals are already buying

policies that cover physicians practicing in

those institutions,46 incentives already exist to

implement strong risk management programs.

Even if the hospital is not purchasing insurance

for attending physicians, hospital insurance

premiums are experience-rated, and limiting

the number of adverse events in the hospital

limits the hospital exposure to suit.

The AMA has opposed enterprise liability

because physicians fear the encroachment on

professional authority by health plans or

hospitals (84). In essence, enterprise liability

would mean the end of physicians as

“independent agents” under the law. Other

experts believe it is very unlikely that hospitals

and HMOs will impose strict guidelines aimed

at limiting malpractice by physicians, Limits
on physician autonomy are more likely to arise

from efforts to control overall health care

costs, rather than malpractice (27).

Although elements of enterprise liability have

been introduced in HMOs and some hospitals,

a regime of enterprise liability does not

currently exist in any State; consequently, the

effects of such an approach on malpractice

indicators have not been tested.

Contracting for Liability

Just as arbitration is implemented by

contract, some legal scholars and economists

claim that all tort reforms can be implemented

through contracts between patients and health

care providers, rather than by legislative

action. 47 Theoretically, contract reforms would

allow consumers to structure malpractice

liability to suit their own needs, balancing

price and quality (53). 48 According to its

proponents, contracts would allow individuals

to choose the amount of risk they are willing

to assume with respect to medical injuries.

Moreover, contracting would allow tort reforms

to be implemented without a political battle.

In analyzing proposals for malpractice

reform through contracts, it is useful to

separate contracts that would alter the procedure for resolving a malpractice suit from

those that would alter substantive rules of

malpractice liability, such as the proper

standard of care or level of damages. While

both types of contracts are based on the view

that the market for health care can

accommodate different arrangements to address

physician liability, procedural changes are

likely to be given greater deference by the courts

than substantive changes because of the differential impact on consumers.

Procedural Contract

Contracts for

Revolution--Plaint iffs

can always agree

Reforms

Alternative Dispute

and health care providers

to alternative dispute

resolution procedures (e. g.. arbitration) after

an injury occurs, but this is rarely done. The

real issue for contracting is whether patients

can enter contracts in which they agree prior to

treatment to submit any future malpractice

claim to binding alternative dispute procedures

rather than pursue that claim in court.

The courts have specifically allowed

contracts requiring patients and providers to

engage in arbitration to resolve any future

malpractice claims; but they generally

scrutinize these contracts carefully to insure

that they were freely negotiated and that the

patient was not pressured into an agreement as

a condition of treatment. 49 Because arbitration

and other alternative dispute resolution

contracts change the procedure for determining

liability, but do not limit the plaintiff’s

substantive right to compensation for negligence,

concerns about unequal bargaining power

between patient and provider may not be as

great for this class of contracts as they are for

the others (88).

Contracting for Enterprise Liability--

Allowing providers, health care institutions,

and patients to contract for enterprise liability

may be a more feasible way than legislation to

implement this reform ( 156). The contract

between the provider and the institution would

place all liability for the physician’s actions with

the health care institution, and there would

likely be a provision governing the institution’s

right to discipline the physician. The courts

would probably not scrutinize the fairness of

this contract because physicians and health care

institutions are on relatively equal bargaining

ground. HMOs and some large hospitals have

already contracted with their providers to pay for

their liability costs (l). However, the plaintiff

would retain his or her right to sue the physician

unless an additional contract among the patient,

physician, and the health care institution was

executed. Under this contract, the consumer

would agree that all complaints about the quality

of care received would be brought solely against
48- Impact of Legal Reforms on Medical Malpractice Costs

the institution. Again, a court’s response to

such a contract is difficult to predict, but if the

consumer’s right to sue is still preserved, the

contract is likely to be seen as procedural in

nature and there would

favor of enforcing it.

Contracts That Change

Medical Malpractice

be strong arguments in

the Substantive Law of

Contracts that Alter the Standard of

Care--When health care providers have

attempted to eliminate their liability through

contracts with patients, the courts have

uniformly invalidated these contracts on the

basis of unequal bargaining power and public

. Rather than eliminating all policy concerns. 50

-

liability. advocates of contract reforms argue

that consumers have ample power through their

representatives---employ ers, labor unions, HMOs,

and PPOs--to bargain with providers and alter the

standard of care in return for pric e

concessions (46(a)). This argument assumes.

however, that the interests of employers,

HMOs and PPOs coincide with those of

consumers. Given the number of uninsured

persons and the evidence that many Americans

feel vulnerable about their medical coverage,

consumer bargaining power may be overstated

(23, 148). Further, there is no evidence that

consumers desire to contract with their

providers for a new standard of care (7).

It may prove very difficult to define a new

standard of care with enough specificity so as

to avoid litigation over the meaning of the

contract. From a practical perspective, to develop a legally enforceable contract for a more

limited standard of care, the provider would

likely need to transfer “excessive quantities of

i nform at i o n” on all possible risks, both

anticipated and unanticipated (39). This burden of information led one early advocate of

contract reform to later conclude that contracts

for the standard of care may not be an improvement over the present standard of care

used in malpractice cases (39).

Finally, providers might open themselves

to the criticism that they are asking consumers

to submit to an unreasonably risky standard of

care, if the standard developed in the contract

were to differ materially from the prevailing legal

standard, which reflects medical custom (7, 156).

An alternative, however. is to contract for the

application of specific clinical guidelines. The

courts might be more comfortable with enforcing

a standard of care that reflects medical consensus.

The court would likely focus on the process used

to develop the applicable guideline.

Contracting for Damages--Plaintiffs enter

the malpractice system with different financial

means; consequent y, some consumers might

prefer to contract for limited liability damages

before services are rendered in return for lower

health care costs. Such contracts could address

issues such as collateral source payments, periodic

payments, and calculation of economic losses or

pain and suffering awards. Whether such

contracts could withstand legal challenge is

debatable, but they may have better prospects

than contracts involving changes in the standard

of care. While consumers differ in terms of

financial resources, they do not differ in their

need for quality medical care. For this reason,

the courts are likely to be more comfortable with

consumers limiting their potential compensation.

especially if they have other financial

resources.

51

Currently, there is little agreement on the

proper level of pain and suffering damages,

Courts provide juries with very little guidance,

if any, on calculating pain and suffering damages,

and such assessments appear to be inconsistent

(15). Consequently, agreements on guidelines

governing pain and suffering awards might be

acceptable to both courts and policymakers.52

To date, however, such contracts between

patients and providers are extremely rare (if

they exist at all), and OTA has not found any

case law testing their feasibility.
Chapter 2--Approaches to Malpractice Reform: States' Experience and New Ideas -49

CONCLUSION

Almost all of the malpractice reforms that

have been considered to date are in place in at

least a few States. (Table 2-1 provides a gross

State-by-State summary of selected reforms.

Appendix A provides further detail on specific

State programs and provisions. ) Over half the

States have amended the traditional collateral

source rule, allowed for periodic payments of

damage awards, shortened or modified the statute

of limitations, implemented pretrial screening,

and/or placed some type of limit on attorney

fees. In some States these provisions are

voluntary (i. e., left to the discretion of the

court or involved parties), while in others they

are mandatory.

In addition, just under half of the States

have set statutory caps on noneconomic or total

damage awards. The actual limits on awards

range widely. In reality. damage caps address

only a small minority of claims--in general,

those claims by patients with the most severe

injuries. It is for this reason that caps on

damages have been the most controversial.

A recent approach that attempts to clarify

the standard of care to which physicians are

held involves using clinical practice guidelines

in determining physician negligence or nonnegligence. Increased development and

adoption of these guidelines, regardless of

whether their role in the medical malpractice

tort system is further formalized, may lead to

more uniform jury and court decisions in

medical malpractice cases and help physicians

avoid future instances of malpractice.

However, a number of problems inherent in the

structure of clinical practice guidelines may

limit their usefulness or appropriateness as

definitive legal standards of care. The debate

over guidelines development methodology has

in a sense just begun; hence, adoption of

clinical practice guidelines as definitive legal

standards may be premature, Only three States

have attempted to formalize the role of

guidelines in malpractice litigation and these

efforts have yet to yield even anecdotal results.

More comprehensive reforms of the

malpractice system, such as mandatory ADR

measures, have not been widely adopted,

largely because of concerns over potential

constitutional challenges (see app. B). To date,

ADR procedures such as arbitration have been

implemented only on a voluntary basis and

have not been used extensively in medical

malpractice cases. Fifteen States have specific

statutes author i z ing voluntary, binding

arbitration for medical malpractice, but only

Michigan has actively encouraged arbitration,

with limited success. As long as ADR remains

a voluntary adjunct to the civil jury system, its

success will depend upon the State’s willingness to promote the process and convince

plaintiffs and defendants that it is in their

interest to elect it. Some critics contend that

ADR could be promoted to a greater extent if

courts would be more willing to allow patients

to contract for arbitration in advance of

treatment (by focusing on whether the alternative

dispute resolution procedures are fair) rather

than scrutinizing the circumstances surrounding

that waiver of right to trial. However,

perhaps the largest road block to ADR is the

unwillingness of plaintiffs and defendants to

use available alternative dispute resolution

procedures in the 10 to 20 percent of cases that

go to trial.

An extension of voluntary contracts for

ADR is to allow all aspects of medical malpractice--e, g. awards, standards of liability,

forum, etc.--to be negotiated by contract

between patients or businesses and health care

insurers. To date, judicial suspicion of the

fairness of such contracts has been one barrier

to such an approach (118).

Limited no-fault programs have been

implemented in only two States (Virginia and

Florida). Both of these programs apply only to
50- Impact of Legal Reforms on Medical Malpractice Costs

very particular types of birth-related neurological

injuries. The number of claims processed

through both systems combined in their first 5

years of operation is less than 100.

More comprehensive proposals, such as

ACES, attempt to address the issue of causality

in a no-fault system but have yet to be tried.

The potential costs of no-fault programs are

likely to be a stumbling block, because the

focus of legislatures has been largely to limit

the cost of the malpractice system.

The fact that some State courts have been

willing to overturn malpractice reform

measures has important implications for future

Federal malpractice reform. Statutory caps on

damage awards have been particularly vulnerable to challenge under State constitutions. In

general, courts have been reluctant to support

provisions they view as depriving individuals

of their right to judicial recourse, unless

these provisions can be reasonably expected

to further a legitimate legislative purpose.

Selective no-fault programs in two States may

have passed a limited challenge to their

constitutionality, but a specific challenge on the

constitutionality of removing these claims from

the judicial system has yet to be brought.

As mentioned earlier, most of the reforms

implemented to date have been passed to

address a perceived activity “crisis” in malpractice claims or tort liability in general (14). As a

result, they have focused on limiting suits, and

hence have not attempted to increase injured

parties’ access to fair compensation. Recent data

on the rate of negligent injury and the corresponding claim rate for those injuries has

somewhat refocused the debate. The more

recent reform proposals--no-fault and expanded

ADR proposals--now address patient’s access

to compensation, as well as the cost of

resolving claims. The new theme that runs

through these recent proposals is to increase

access by injured patients, limit damages, and

look to quality control mechanisms other than the

medical malpractice system. However,

any reform that is effective in streamlining

the existing process for resolving medical

malpractice cases could indirectly improve

access to the system.
Chapter 2--Approaches to Malpractice Reform: States Experience and New Ideas -51

Footnotes for Chapter 2

I FOr ~ dc=crip(ion of ~rOpOSed malpractice reform legislation in the 102d and losd Congresses, Scc (146)”

20thcr strategies for addressing the malpractice problem include malpractice insurance industry rcf~rms, such

as the establishment of joint underwriting associations. These approaches, although discussed briefly in an

historical context in chapter 1, are not the focus of this background paper.

sTab]eS in appendix A provide further detail on specific State provisions.

~his classification of tort reforms is largely taken from (14).

5Hardy V, verMeu]en, 512 N.E.2d 626 (Ohio 1987) cert. denied 484 U.S. 1066, 108 S. Ct. 1029 (1988)

(overturning restriction on discovery rule); Schwan v, Riverside Methodist Hospital, 452 N.E,2d 1337 (Ohio

1983) (overturning 1 year limitation that applied to minors over 10 years of age); Neade v. Nelson, 685 S.W.2d

11 (Tcx, 1985); Nelson v. Krusen, 678 S.W.2d 918 (Tex. 1984) (statute of limitation cutting off cause of action

before discovery held unconstitutional); Barrio v. San Manuel Div. Hosp. for Ma~ma Comer Co., 692 P.2d 280

(Ariz. 1984) (limitations for minors violates fundamental right to recover for tort); Kenvon v, Hamrncr, 68S

P.2d 961 (Ariz. 1984); Austin v. Litvak, 682 P.2d 41 (Colo. 1984); Shessel v. Stroup, 316 S,E.2d 155 (Ga. 1984);

Strahlcr v. St. Luke’s Host)., 706 S.W.2d 7 (Me. 1986) (statute of limitations for minors violates right of access

to courts).

~A]though ~rctria] Screening panels are regarded by some as a form of alternative dispute resolution (ADR),

wc discuss them separately because they add a preliminary step to the existing system for deciding malpractice

cases rather than replacing the judicial system. Other forms of ADR arc discussed below.

7 1n F]orida and Pennsylvania the p~ctrial screening panel was nOt fOUnd UllCOtlStitUtiOIlid in and of itself, but

instead, the long delays in bringing cases through the pretrial screening process made it unconstitutional in

practice (Mattes v. Thom~son, 421 A.2d. 190 (Pa. 1980); Aldana v. Holub, 381 So.2d. 231 (Fla. 1980)).

8~ce Canterbury v. s~cncc, 464 F.2d. 772 (D.C. Cir. 1982); Cobbs V. Grant, 502 p,2d. 1 (Cal. 1972).

9Lcgally recognized exceptions to informed consent requirements include: (1) Iife-threatening cmcrgency

situations, (2) situations where divulging the information could threaten the patient’s medical condition, and

(3) situations where the patient indicated he/she did not want to know the risks of treatment (62).

locational data from 1985-1989 show that “failure to instruct or Conlmunicate with the patient” was the

principal alleged departure from accepted medical practice in only 2 percent of claims (11 1).

1 IThc rationale for this is that lay juries may not be able to interpret the scientific Ianguagc of the guidelines

without the assistance of an expert. Some States have exceptions that give cour[s discretion to allow learned

medical treatises to be admitted into evidence without accompanying expert testimony (67,77).

12(~uidc]incS for selected areas of practice in obstetrics/gynecology, cmcrgency medicine, r~dio~ogy, and

anesthesia were developed by four medical specialty advisory committees appointed by the Maint Board of

Registration in Medicine,

13A]though Minnesota’s statutory language describes the provision as an “absolute defense,” the ICW1 mcanin~

is essentially the same as Maine’s “affirmative defense” provision--i, c,, in order to establish the physician’s

ncgligcncc the plaintiff must prove that the physician did not follow the guideline or that the guideline is not

applicable to the specific case.

~~hc arbitration and Practice guideline provisions of the Vermont statute will not gO into effect unless and

until a legislatively crcatcd board implements a universal access plan for the S[atc--cxpcctcd (o happen in July

1994.
52- Impact of Legal Reforms on Medical Malpractice Costs

15Thi~ rationale for the tradition] Collateral source rule is undermined by the fact that malpractice insurers,

not individual physicians, pay the vast majority of malpractice awards and there is little cxpcriencc rating of

malpractice insurance premiums.

1 61n North Dakota, for examp]e, collateral sources do not include any life insurance or o~h~r d~alh or

retirement benefits or any other insurance or benefit that was purchased by the party recovering economic

damages (N. D.C.C. $ 32-,03.2.06 (1993)). Washington excludes information on insurance payments from all

insurance policies purchased by the plaintiff or purchased by an cmploycr for the plaintiff (R.C.W. ~ 7.70.080

(Lcxis 1991)).

17Four of the eight States that have caps on total damages also have State Patient Compensation Funds (PCFS),

which provide additional insurance beyond that guaranteed by the defendant’s malpractice insurance policy. In

the typical PCF, the physician is required to carry insurance to pay for the first $100,000 to $200,000 of the

award, and the PCF pays the remainder of the award up to a set amount (typically $350,000 to $1 million).

PCFS in and of themselves do not place a cap on damages but are a form of additional State-supported

insurance. The cap on total damages, however, limits the fund’s exposure (see app. A, table A-2). Three of

the five States that have a PCF without an explicit cap on total damages limited their fund’s liability to $800,000

or $1 million.

l~Barbara Moore v. Mobile Infirmarv Association, 592 S.2d 156 (Ala. 1991); Brannigan v. ustilat~, 587 A.2d

1232 (N.H. 1991); Morris v. Savoy, 576 N.E.2d 765 (Ohio 1991); Truiillo v. The Citv of Albuqueruuc, 798 P.2d

571 (N.M. 1990) (cap on damages applied only to suits against government health care facilities); Sofic v.

Fibreboard, 771 P.2d 711 (Wash. 1989); Condemarin v. University Hos~ital. Univcrsitv of Utah, 775 P,2d 348

(Utah 1989) (cap on damages for suits brought against government health care facilities); Kansas Malt) racticc

Victims Coalition v. Bell, 757 P.2d 251 (Kan. 1988); Lucas v. United States, 757 S.W.2d 687 (Tcx. 1988); Smith

v. Dept. of Insurance, 507 So.2d 1080 (Fla. 1987); Baptist Hospital of S.E, Texas v. Barber, 672 S.W. 2d 296

(Tex. App. 1984) aff’d. 714 S.W. 2d 310 (Tex. 1986); White v. State, 661 P.2d 1272 (Mont. 1983) (cap applied

only to governmental tort liability) ovemlled Meech v, Hillhaven West 776 P.2d 488 (Mont. 1989); Carson v.

Maurer, 424 A.2d 825 (N.H. 1980); Arneson v. Olson 270 N.W. 2d 125 (N, D. 1978); Jones v. State Bd. of

Medicine, 555 P.2d 399 (Idaho 1976) (remanded to dctcrminc whether cap bore fair and substantial relation to

legislative objective) cert. de~zied State Board of Medicine v. Jones, 431 U.S. 914 (1977); Wri~ht v, Central

Dupage Hosp. Assn., 347 N.E.2d 736 (111, 1976).

19Scholz v. Metro~oli[an Pathologists, 851 P.2d 901 (Co. 1993); Vincent v. Vernon Johnson ~ss S.w.zd 859

(Me. 1992); Samsel v. Wheeler Transportation Service Inc., 789 P.2d 541 (Kan. 1990) (cap applied to all

personal injury suits); Etherid~e v. Medical Ctr. Hospitals, 376 S.E.2d 525 (Va. 1989); Williams v. Kushncr,

549 So.2d 294 (La. 1989); Fein v. Permanence Medical Grour), 695 P.2d 665 (Cal. 1985) cert. denied 474 U.S.

892, 106 S. Ct. 214 (1985); Johnson v. St. Vincent HOSP.. Inc., 404 N.E.2d 585 (Ind. 1985); Siblev v. Board of

Supervisors, 477 So.2d 1094, request for appeal denied 496 So.2d 325 (La. 1986) modified otl rchcatitg 477 So.2d

585 (La. 1985) (conditional remand on equal protection grounds); Prendcr~ast et al. v. Nelson, 256 N.W.2d 657

(Neb. 1977).

200f the sample of claims, only AS percent resulted in a payment to the plaintiff. of those with a Paynlcnt, data

on noneconomic damages were provided for less than one-half of the claims. In addition, bccausc most suits

were settled, data on noneconomic damages are based on insurers’ estimates. The spm-sity of data on

noneconomic damages from the insurers may be a result of insurers not being able to provide accura[c

estimates (68,142).

21Agc and severity of injury were chosen because in a regression ana]ysis Of IIOllCCOIIOmiC d~mafjc ~w~rds in

personal injury cases, severity of injury was the strongest explanatory variable, followed by agc of the victim

(15). A study of 6,612 medical malpractice closed claims from Florida, including jury verdicts and settlements,

.

found that severity of injury accounted for 40 percent of the variation in payments (128).
Chapter 2--Approaches to Malpractice Reform: States' Experience and New ldeas -5.3

2~Thi\ ~~[imalc inc]udc~ ~)n]y ~]aintiffs’ and ins~rers’ ]~ga] fees and Cxpcnscs in prO~~Ssing cl:~inls and ‘~)cs ‘CJ[

. .

include court expenditures, the cost of the defendant’s time, or the plaint ifl’s time (61 ). I n 1‘)78, (1IC National

Association of Insurance Commissioners reported that the average cxpcnscs ft~r insur-iincc c~jnl panics w’crc 2S

pcrccnt of total indcmnity paid. If onc adds the plaintiffs’ attorney fees, usuall) t~nc-third t~l the aw:ircl, [hen

[hc plaintiff is rccciving approximately $0.50 of mwry dollar spent by tht mtilprac(icc insurer L)II pr~)ccssing and

paying the claim (97).

~~Thc cla~fic Cconomic modcl~ Predict that C]aims will bc sctt]cd when th~ d~~~t’1”(’)1~(’ l~~t~~’~~11 th~ ~~~ ‘) P~rli~s’

. .

valuation of the case (taking into account the pcrccivcd likelihood of winning and cxpcc(cd d:imagcs :it [rial) is

Icss than the cxpcnsc of taking the cases to trial (16). Scc (127) for a discussic~n of [hu cc(~nt~n]ic Ii[cr:i[urc on

scttlcmcnt of claims.

2~hc California Suprcmc Court, for example, rcccntly issued a (iccisi,)n [h:i[ :irbitratit,n dccisi,,ns :irc n,,t

generally rcvicwablc even if there is cvidcncc that the arbitrator’s error will cause su}w[;in[i:i] ill,ju~[icu ttl the

parties (Moncharsh v. HcilV Blase, 832 P.2d 899 (Cal. 1992)).

251n general, contracts bctwccn two parties may bc held uncnforccablc if (I1c hiirg;iining p(~wcr ~~f the p:ir[ics is

disparate and the party with greater power unfairly limits the rights of [hc wciikcr p:irt) (24,25,()()).

20BI[(, see Brocmmcr v. Abortion Scrviccs of Phoenix. Ltd., 840 P.2d 1013 (Ari~. l“~)2) (~irbi[rtiti(~n :igrccmcnt

m~idc bctwccn high school graduate, who was 16 to 18 wtcks prcgn;in[, and :ih~~ rt i (1 n c1 i n i c Wr:is n ()(

cnforccablc).

28 Thcrc arc exceptions. Kaiser Pcrmancntc, a health maintenance organization, has manda(cd arhi[r:iti{~n f~~r

all health care claims in California, Colorado, Hawaii, and Washington; h(n~v~cr, Kaiser rcccn[ l} dr[)ppcd the

arbitration rcquircmcnt in orcgon (82). As of 1992, Kaiser enrolled apprt~xi m iit cly 5.5 m i lli~~n pct~plc in these

S[atcs (including orcgon) (14-4). Ross-Loos, an HM() ]ocatcd in Southern ~’:ilif~>rnia wi[h :ippr[~ximatcly 1

million cnrollccs, also makes arbitration a condition of its H M() contract ( 144).

20MIJst disciplinary actions have in~wlvcd charges of substance abuse, inappr(~pria[ c w’ri[ ing of prescriptions,

con~ictiori of felony or fraud, and other unethical bcha~’ior ( 102,147,153).

~OHowcv,cr” Workers” ~ompcnsation cl~ims invo]ving difficult judgmunts iihout cdusa[i~)n (C.g., iil!C~ii[i(JllS of

occupational diseases) arc often disputed (3).

31 Bi[]\ t~) Crca[c \imi]ar Pr[)grams for bir(h. rc]atcd ncurol~gic~l injuries \\CI”C [lrc\cn[cd in ~LJI”[h ~’~il (~lill~i LInd L

Ncwf York in 1991 and 1990, rcspccti~cly (13,101).

~2Thcrc is ~omc c~ridcncc that manY birth-related injuries attributed IL) ];i~k of t~~~’g~n d~ll”in~ ~h~’ l~ir~hing

. .

process have prenatal causes that ar~ yet unexplained (57,99,100,104,13 [)).

~S]n 1992 in California, birth injury cases ~ccountcd for 16 pcrccnt of ~]] mcdica] nlii]pr:iclicc CLiSCS iiI~~ so

pcrccnt of all indcmnity (86).

~~BOYd v. Bu]ala, 647 F.supp. 781 (W-D. v~. 1988). The decision on the c~ip Wlis C~VCrtUrnCd ~Jn ~lPPC:Il (_.!h!b

Bulala, 877 F.2d 1191 (4th Cir. 1990); Bovd v. Bulala, 905 F.2d 1190 (4th (-’ir. 1°(A))). The Fcdcr~il court relied

largely on the Virginia Suprcmc Court’s decision to uphold the cap on damages in 19X() (EthcridUc t. Medical

Center Hospitals, 376 S.E.2d 525 (Va. 1989)).

~5Thc dcfiniti[)n of nCur{)]Ogic~l injury was ~][crcd Slight]v in 1990 [t) idcnlif~r c]if&ib]c illfiill[S I1lcJI”C CiisilJ’ dn~

.

earlier (113,1 23). Howe\’cr, the severity of injury required did n[~t change ( 122).

S6par[icipating physicians and midwi~,cs pay $5,~~~ pcr year, and particip;i[ing h(M])i[;ilS i~~l>’ $~() ~~~r d~li~’~r}’, Ul)

(o a m~ximum of $150,000. Non-participating physicians originiill} p:iid $250 pcr ~ciir; h(~~~c~cr, bccuust the

Fund has rcmaincd actuarially sound, this assessment was w:ii}ed f~~r l~Y)3 (3S,1 13). A[ prcjcn[. li:ibility
.54- Impact of Legal Reforms on Medical Malpractice Costs

insurance carriers do not contribute; however, the statute authorizes the fund (o assess thcm a[ up to 0.25

percent of each carrier’s net direct premiums (Va. Code Ann. $38.2-5020 (1992)).

~7Th~ claimant must provide a brief statcmcnt of the facts and circumstances surrounding th~ birth-related

neurological injury, and include all medical records, relevant documentation from medical cva]uations,

prognoses, and documentation of expenses and services incurred to date (Va. Code Ann. $38.2-5004 (1992)).

381n three Cases, the Fund accepted the liability and there was no hearing (123).

391f the birth was attended by a nonparticipating physician or occurred in a nonparticipating hospital, the

claimant may decide to sue the nonparticipating doctors or hospital. If the claimant makes this election, he or

she cannot name the participating physician or hospital in the legal suit and the clairnan[ loses his or her

opportunity to receive compensation from the Fund (Va. Code Ann. $ 38.2-5002 (1992)).

~Nonparticipa[ing physicians contribute $250 annually, participating physicians COtltribUtC $s,o~)o ~nnu~lly, and

private hospitals contribute $50 per live birth (excluding infants born to charity patients or certain Medicaid

patients) (Fla. Stat. $766.314 (1991)).

41Thc ~uthors ~xamined 2,3~o cloSCd Claims from Florida for these spCCia][ics from 1985 ~~~ loss ( 13~).

42Thc HM() can be held liable under the doctrine of rcspondeal superior, which protrides lha[ all Cn~plOyCr is

directly liable for the negligent acts of his or her cmployccs (8). Hospitals, too, arc dircc[ly responsible for

their physician employees, such as medical residents and salaried hospi[til physicians. In rcccnt yctirs hospita]s

have increasingly been held liable for incidents duc to actions of noncmploycc physicitins with admitting

privileges under several different legal doctrines (8). Courts have concluded tha( the hospital htis ti legal duty

to the patient to insure a certain quality of care.

43T() be accredited by the JOin( commission for the Accreditation of Hca][hcarc organizations (a r~ql.lir~m~nt

for receiving Medicare reimbursement), hospitals must establish risk management programs, and at least 10

States require risk management as a condition of hospital Iicensurc (96).

4 41n 1984, appro~matcly 25 percent of medical malpractice claims involved rnu]tiplc dcfcnddnts, with manY

naming hospitals or HMOS as well as physicians (142).

451f ~ntcrprise liability were implemented without managed competition, hospitals’ inccn[ives [o reduce

dcfcnsivc mcdicinc might be no greater than they are today.

461t is not uncommon for a large hospital t. purchase insurance for the institution and then allow physicians

who practice in the institution to purchase under a single policy (40,63).

47 For a rcviCw of the proposals and scvcra] critiques, sec (70),

48what constitutes “quality” medical care is difficult to define. Proponents of using contrac[s to define a new

legal standard of care argue that professional custom, which is currently used to dctcrminc the proper standard

of care, may not necessarily be good practice. Medical custom has developed in a health care systcm with fcw

cost constraints, and may therefore be highly inefficient and not promote quality care. Advocates of contracts

question the legal system’s implicit assumption that a single standard ft)r go(d medical care ciin be derived

from medical custom (52). Opponents note that the legal standard of care reflects the care tha[ would bc

provided by the average skilled physician, and includes cxccp[ions ft)r minority opinions ~~r m istakcs in

judgment, and is therefore more accurately characterized as a “reasonable carc(( standard (7), As such, it is

basically the same standard used in all tort actions. Nonetheless, if it is pro}en [hat [he existing lcgtil standard

for “reasonable care” far exceeds what is reasonable, then the medical malpractice liability standtircl should be

changed rather than having some malpractice claims subject to an incfficicn( standard (7).

‘%(?, e.g., Broemmer v. Abortion Services of Phoenix. Ltd., 840 P.2d 1013 (Ariz. 1992) (agreement to arbitrate

signed by plaintiff at abortion clinic was unenforceable because of failure to adequately explain to the plaintiff

the implications of the waiver and that the arbitrator would bc a physician; (Madden ~. Kaiser Foundation
—

Chapter 2--Approaches to Malpractice Reform: States Experience and New Ideas - 55

Hospitals, 552 P.2d 1178 (1981); Wheeler v. St. Joser)h HosDital, 133 Cal. Rptr. 775 (Cal. Ct. App. 1976). .!!cc

genera/Iy (19).

5OTunk] v. Rc~ents of [hc university of Cal., 383 P,2d 441 (Cal. 1963); Tatham V . Hokc, 469 F.SUPP. 914

(W. D.N.C. 1979) affd. wi~}zou( opinion 622 F.2d. 584 (4th Cir. 1980) (agrccmcnt requiring plain[iff to submit

claim to arbitration within 30 days or Iosc right for recovery and providing for $15,[)00 limitation on rcco~cry

was invalid); (53).

51A ~ontrac[ may bc Uncnforccab]c if a court determines there is a disparity in bargaining power such th~l onc

of the parties docs not have a realistic opportunity to bargain (Broemrncr v, Abortion Services (>f Phoenix,

~., 840 P.2d 1013 (Ariz 1992)). An agreement to limit malpractice damages made by a patient with financial

rcsourccs to pay for medical injuries may not raise as many concerns about unequal bargaining p(~wc r as an

agrccmcnt by a patient with few financial resources. Of course, any analysis of the contract will also depend

on the concessions made by the provider.

52 For ~ Possib]c mode] on scheduling pain and suffering damages, see (15).
Chapter 3

Impact of State Tort Reforms

INTRODUCTION

Several studies have addressed the

important issue of whether various medical

malpractice reforms adopted by certain States

during the mid-1970s and mid-1980s (discussed

in depth in the preceding chapter) helped

restrain the apparent surge in malpractice

costs during those periods. This chapter

examines studies that employed systematic

empirical methods to address the question of

whether these reforms reduced the frequency

of medical malpractice claims, the amount of

payment per paid claim, and/or the levels of

medical malpractice insurance premiums

(hereinafter collectively referred to as the

“malpractice cost indicate. Most of these

studies used data derived from companies

that sold medical malpractice insurance to

providers in one or more States during the

periods in which the reforms were adopted. As

will be summarized in the subsections that

follow, however, the studies’ methods and

findings differed greatly.

Certain empirical studies in the field of

medical malpractice were not included in

this review. Some studies have focused on

single States that have adopted various tort

reforms, and a few of these studies have

included comparisons of one or more of the

malpractice cost indicators before and after

adoption of these reforms. Our review here

covers only studies that examined the impacts

of tort reforms in two or more States. 1 We

also excluded studies whose data predated

the major wave of State medical malpractice

reforms adopted in the mid- 1970s (e. g., 42)

and those that used data for only a few years

following those reforms (28.34,124). Some of

these studies were subsequently updated by

the same authors, and those later studies

(30. 129) are included in our review. Finally,

we excluded studies that only used data

descriptively and/or reviewed other

empirical studies (32.33.94, 142) or developed

theoretical models of the malpractice cost

indicators (31 ).

The following summary describes six

studies that employed multiple regression

analysis or similar statistical methods to

analyze the impact of various State tort

reforms on one or more of the malpractice

cost indicators (2,9, 12,30.129,161 ).2 These

studies provide analytical as well as

descriptive information on the impacts of

State tort reforms while controlling for the

effects of other important influences on

malpractice cost indicators. For example, all

of the studies reviewed here controlled for

the independent effect of interest rates on

malpractice insurance premiums, which

reflects insurance companies expected rates

of return from investment income.

STUDY METHODS

Definitions of’ Reforms

The six empirical studies reviewed in

this chapter employed quite different

definitions of a given malpractice reform;

and even when they used common

definitions, each combined widely differing

specific reforms into a single category.

None of the studies examined the impact of

any alternative dispute resolution (ADR)

reforms except for voluntary, binding

arbitration. Nor did they investigate the

effects of the recent no-fault programs for

compensating newborn neurologic injuries in

Florida and Virginia.

The usual approach to measuring State

tort reforms was to record whether or not a

given type of reform was in effect in a

given State at a given point in time. The

malpractice reforms examined in these studies

can be classified into 16 categories. Table

3-1 shows which reforms were addressed in

-57 -
58- Impact of Legal Reforms on Malpractice Costs

Table 3-l--State Tort Reforms Examined in Six Empirical Studies

on Medical Malpractice Reform

Study

Reform Adams Barker Blackmon Danzon Sloan Zuckerman

Restrict the statute of limitations:

Use date of event, not

discovery

Shorten basic statute of

limitations for medical

malpractice

Shorten statute of limitations

for minors

Shorten extension of statute

a.

b.

c.

d.

x

x

—

— — — — —

x x x x

— — — —

x

x

of limitations from date

of discovery

Establish pretrial screening panels:

a. Mandatory

b. Results admissible in trial

c. Any type

Limit attorney fees

Modify the standard of care:

a. Codify the standard of care

b. Do not adopt the “expanded

locality rule”

c. Establish qualifications for

expert witnesses

Require or allow awards

to be reduced by amount

of collateral payments:

a. Require

b. Allow

c. Either require or allow

Impose caps on damage awards:

— — — — x x

— — x — — —

— — x

x

x

x

—

—

—

—

x

— — x x x x

x —

— . —

— — —

— —

—

—

—

x

—

—

x

— — x — — —

x x x

x x

x x — —

—

—

— x - — — —

— — —

x x

x x

xa. Total damages

b.

c.

d.

e.

—

—

—

Noneconomic damages only

Punitive damages only

Noneconomic or punitive

damages — x -

x — x

—

—

— —

Any type — —
Chapter 3--Impact of State Tort Reforms -59

Table 3-l--State Tort Reforms Examined in Six Empirical Studies

on Medical Malpractice Reform (Continued)

Study

Reform Adams Barker Blackmon Danzon Sloan Zuckerman

Require or allow periodic payments:

a. Require

b. Allow

c. Either require or allow

Restrict the joint and several

liability doctrine

Allow voluntary, binding arbitration:

a. Codify the option of arbitration

for medical malpractice

b. Allow pre-injury agreements to

arbitrate

Restrict the use of res ipsa

loquitur

Restrict the use of ad damnum

clauses

Limit the doctrine of informed

consent

Allow costs awardable in

frivolous suits

—

—

—

—

x

—

x

—

—

—

—

x

—

x

—

—

—

— x - — — xx - -

x — —

— x - -

— x x

— — x -

— x -

— — x -

— x x

SOURCES: E.K. Adams, and S. Zuckerman, “Variation in the Growth and Incidence of Medical Malpractice Claims,(

’

Journal of Health Politics, Policv and Law 9(3):475-488, Fall 1984; D.K. Barker, “The Effects of Tort Reform on

Medical Malpractice Insurance Markets: An Empirical Analysis,’{

Journal of Health Politics, Policy and Law,

17(1): 143-161, Spring 1992; G. Blackmon, and R. Zeckhauser, “State Tort Reform Legislation: Assessing Our

Control of Risks,” in Tort Law and the Public Interest, Peter H. Schuck (cd.) (New York: W.W. Norton & Co.,

1991); P.M. Danzon, “The Frequency and Severity of Medical Malpractice Claims: New Evidence, ” Law and

Contemporary Problems 49(2):57-84, Spring 1986; F,A. Sloan, P.M. Mergenhagen, and RR. Bovbjerg,

“Effects of Tort Reforms on the Value of Closed Medical Malpractice Claims: A Microanalysis,’( Journal of

Health Politics, Policy and Law 14(4):663-689, Winter 1989; S. Zuckerman, RR. Bovbjerg, and F. Sloan,

“Effects of Tori Reforms and Other Factors on Medical Malpractice Insurance Premiums, ” Inquiry 27(2):167-

182, Summer 1990.
60- Impact of Legal Reforms on Malpractice Costs

each study (referenced by the first author’s

last name). Each kind of reform was usually

measured as a binary variable whose

value was set equal to 1 if the reform

was in place in the State, and O if it was not.

In the only departure from this approach,

three studies measured the length of a State’s

basic statute of limitations as a continuous

variable (i. e., number of years) (30,129, 161).

Malpractice Cost Indicators

The focus of all six empirical studies

was to measure the impact of different State

malpractice laws on one or more of the

malpractice cost indicators: (a) the frequency

of malpractice claims, (b) the payment per

paid claim, and (c) malpractice insurance

premiums or losses. In general, the reforms

studied would be expected to reduce these

indicators. Table 3-2 contains a summary

of the measures used in each study:

■ Claim Frequency: The numbe r

of medical malpractice claims,

typically measured as the average

number of claims per insured physician

(or per 100 physicians).4 Claims

against several defendants involving

the same alleged malpractice event are

usually treated as a single claim.

■ Payment Per Paid Claim: The

amount of payment for medical

malpractice claims, usually measured

as an average payment per paid

claim. One study used both payment

amounts for individual claims and a

measure of the probability

individual claim resulted

ment to the plaintiff (129).

s Insurance Premiums or

The premium charged for

that an

in payLosses:

medical

malpractice insurance, measured either

in total or as an average per insured

physician. Two studies used insurance

company losses, or funds placed in

reserve to pay current and future

medical malpractice claims (excluding

expenses for underwriting. sales, and

claims adjustment) (9, 12). Losses

can be interpreted as an indicator of

expected insurance premiums.

Data

The malpractice claims and premium data

used in the six empirical studies fall into

four general categories:

■ Physician-Reported Malpractice

Claims: One study used information

on the malpractice claims experience

from 1976 to 1981 recalled by 3,817

self-employed physicians in a single

survey conducted by the American

Medical Association (2).

■ State-Level Malpractice Premiums

and Losses: Two of the studies

obtained insurance company data on

medical malpractice premiums and

losses from the A.M. Best Company,5

and aggregated those data to the State

level. Blackmon and Zeckhauser

used the percentage change in

premiums and losses from 1985 to

1988 (before and after adoption of

selected tort reforms by certain States

in 1986) (12), Barker used the mean

of each State’s ratio of losses to

premiums (loss ratios) over a 10-year

period (1977-1986) (9).

■ Company-State-Year Claims Data:

Two studies aggregated claims data

from seven insurance companies

operating in 49 States for the years

1975 through 1984, supplemented in

the later study by data for 1985 and

1986 (30,161). When more than

one company operated in a given

State, Danzon aggregated the companies’ data to the State-year level,

yielding about 450 observations (30),

(Data were missing for some

companies in certain States and
Chapter 3--Impact of State Tort Reforms -61

Table 3-2--Summary of Data and Methods Used in Six Empirical Studies on State Medical

Malpractice Reform

Reform Adams Barker Blackmon Danzon Sloan Zuckerman

Malpractice cost indicators:

Claim frequency x - — x x

Payment per paid claim:

Amount of payment — — x x x

Probability of payment — — — — x —

Insurance premiums or losses - x x x

Unit of Observation:

Physicians x - — — —

States- X x — —

Company-State-year

combinations — — — x x

Claims — — — x —

Data sources:

AMA/SMS surveya x - — — —

A.M. Best Companyb — x x - -

Insurance companies —

NAICC and GAOd

— x x — — — x —

aAmerican Medical Association Socioeconomic Monitoring SUfVeY

bA M Best Company Is a private insurance rating service

cNatiOnal Association of Insurance Commissioners

du s, General Accounting mice

SOURCES: E.K. Adams, and S. Zuckerman, “Variation in the Growth and Incidence of Medical Malpractice Claims,’(

Journal of Health Politics, Policv and Law 9(3):475-488, Fall 1984; D.K. Barker, “The Effects of Tort Reform on

Medical Malpractice Insurance Markets: An Empirical Analysis, ” Journal of Health Politics, Policy and Law,

17(1 ): 143-161, Spring 1992; G, Blackmon, and R. Zeckhauser, “State Tort Reform Legislation Assessing Our

Control of Risks,” in Tort Law and the Public Interest,, Peter H. Schuck (cd.) (New York: W.W. Norton & Co.,

1991); P.M. Danzon, “The Frequency and Severity of Medical Malpractice Claims: New Evidence,” Law and

Contemporary Problems 49(2):57-84, Sprint 1986; F.A. Sloan, P.M. Mergenhagen, and R R, Bovbjerg, “Effects

of Tort Reforms on the Value of Closed Medical Malpractice Claims: A Microanalysis, ” Journal of Health

Politics, Policy and Law 14(4):663-689, Winter 1989; S. Zuckerman, RR. Bovbjerg, F. and Sloan, “Effects of

Tort Reforms and Other Factors on Medical Malpractice Insurance Premiums, ” Inquiry 27(2)’ 167-182,

Summer 1990.
62- Impact of Legal Reforms on Malpractice Costs

years.) In contrast, Zuckerman,

Bovbjerg, and Sloan retained separate

company-State-year observations,

yielding 713 such observations (161).

The largest multistate insurance

company (the St. Paul Company)

supplied Zuckerman, Bovbjerg, and

Sloan (16 1 ) with corrected data for

the years covered in Danzon’s

study (30). The degree of inaccuracy

in the original data supplied to

Danzon is unknown.

■ National Samples of Claims:

One study (129) used a sample of

closed medical malpractice claims

collected nationwide by the National

Association of Insurance Commissioners (NAIC) from 1975 through

1978 and another such sample collected

by the U.S. General Accounting

Office (GAO) for 1984 (142). These

samples yielded about 1,700 claims

for each of the 5 years.

Methodological Issues

All six of the empirical studies suffer

from methodological problems and limitations

that make interpretation and comparison of

their results difficult. Below we discuss

some general problems with the way State tort

reforms and the malpractice cost indicators

were measured.

Tort Reform Measures

The studies identified State tort reforms

either from direct examination of the

relevant State statutes and regulations or

from various published surveys of those

laws, The specificity and accuracy of these

surveys may have varied, and most did not

reflect whether a reform had been

challenged in court, as many had been. A

court challenge can delay the actual

implementation of a reform and affect the

accuracy of the study findings. For example,

the California tort reform package, which

included a cap on noneconomic damage

awards, was not upheld by the State

Supreme Court until 1985, 10 years after it

was enacted into law (Fein v. Permanence

Medical Group, 695 P.2d 665 (Cal. 1985)).

For simplicity, the studies usually

grouped often complex reforms into single

categories, thereby obscuring important

variations in those reforms. For example,

most of the studies examined the effects of

changes in State statutes of limitations. States

have taken widely differing approaches to this

reform (see ch. 2), For example. some States

have limited the period of time within which

injured minors have to file suit, while other

States allow the suit to be brought many

years after the incident. Similarly, some

States allow suits involving foreign bodies left

in a patient following surgery to be brought

years after the incident, while other States

do not. Many of the reforms that shortened

statutes of limitations carved out such

exceptions, which may significantly limit the

effects of the reform (1 15),

States have taken equally diverse

approaches to other tort reforms. including

pretrial screening panels and voluntary,

binding arbitration (see ch. 2 and app. A for

details). These nuances cannot be fully

captured in simple binary variables. The

inferences that can be derived from the results

of the empirical studies are thus limited to

general patterns associated with the presence

or absence of broad categories of reforms.

More importantly, collapsing different

approaches to the same reform into a single

binary variable will bias (toward zero) the

estimated impacts of the truly effective

approaches, because the weaker approaches

will “water down” the effects of the stronger

ones. Consequently, finding a significant

effect of such a watered-down variable
—.—

Chapter 3--Impact of State Tort Reforms -63

suggests that the stronger approaches might

have had even greater impacts than the

finding indicates. However, it is impossible

to deter-mine, based on these studies, which

specific approaches might have had the

more significant impacts.

Malpractice Cost Indicators

It is difficult to measure malpractice claim

frequency accurately on a State-by-State

basis. It is not known to what extent the

different States and insurance companies

that supplied the claims data for these

studies may have used varying standards in

defining a “claim. ” First, in addition to

claims filed in court. insurers may also

include reports of adverse events from

providers to insurers, informal complaints

from patients to insurers or providers, or

notices of intent to sue from attorneys to

insurers or providers. Second, the

“opening” date of a claim is ordinarily used

in measuring claim frequency for a given time

period. However, different States and

insurance companies may have specified the

“opening” date as being the date of injury,

the date of initial contact with the insurer.

or the date a lawsuit was filed. Third, for

malpractice claims against institutions (i. e.,

hospitals), States and insurers may not always distinguish between claims for general

liability (unrelated to health care -- e.g., an

accident in the parking lot or a wrongful

termination of employment) and claims

for professional (physician and nurse)

malpractice (51 ).

In addition, measuring trends in

malpractice claim frequency may be

distorted by changes in State malpractice

laws. Certain tort reforms themselves may

have led to changes in the way malpractice

claims were recorded and counted, thereby

creating illusory trends in claim patterns.6

All of these variations in the nature of

malpractice claims may have reduced the

reliability of the studies’ malpractice cost

indicators, particularly claim frequency.

A final issue regarding three of these

selected studies is the potential impact of

other influences on malpractice insurance

premiums. notably interest rates. Although

they directly affect insurance companies

investment income (which augments their

premium income), at any given point in time

interest rates tend to affect all companies

equally. That is, the variation in interest rates

occurs mainly over time rather than across

companies or States. By using either crosssectional research design or direct statistical

adjustment, the studies examined here

effectively control led for the effects of

interest rates on malpractice premiums.

Another important determinant of the

variation across States in malpractice

premiums is State regulation of insurance

premium increases. Of the three studies of

insurance premiums or losses examined here.

only one statistically controlled for this factor

(161); the other two studies did not (9,12).

Along with the other methodological

limitations discussed above, this problem

should be kept in mind when interpreting the

results of these studies.

RESULTS

Based on the findings of these six

empirical studies, OTA assessed the impact

of each reform on the malpractice cost

indicators: claim frequency, payment per

paid claim. and insurance premiums or

losses. Across the six studies, payment

per paid claim and insurance premiums

or losses were studied more comprehensively than was claim frequency.

Consequently, claim frequency had less of

an opportunity to show statistically significant

results than did the other measures. That is,

the more often the effect of a given

reform is assessed (using separate but

similar measures), the more likely it is that

a significant effect will be found.

Unless adjustments are made for such

multiple comparisons, the results are

biased in favor of finding a statistically

significant effect.
64- Impact of Legal Reforms on Malpractice Costs

The collective results of these six

studies, detailed in appendix C, are

summarized in table 3-3. In the table, the

following symbols are used to represent the

statistically significant findings of the six

studies. (Two or more symbols separated

by slashes indicate that two or more studies

found significant results .)7

■ A minus sign (–) means that a State

tort reform showed the expected

effect of reducing the malpractice

cost indicator.

■ A plus sign (+) indicates that the

reform showed the unexpected

effect of increasing the malpractice

cost indicator.

■ A zero (0) denotes results that were

not statistically significant.

■ A dot (.) means that the relationship was not examined in any of

the six studies.

Caps on Damage Awards

Overall, caps on damage awards were

the only type of State tort reform that

consistently showed significant results in

reducing the malpractice cost indicators.

The most consistently observed effects of

damage caps were in reducing payment per

paid claim, observed in three studies that

employed several different variables for the

tort reform of damage caps and different

measures of payment per paid claim

(30, 129, 161). However, the only study

that examined the impact of damage caps on

claim 8 found no significant frequency

effect of either a cap on total damages or a

cap on noneconomic damages only (161).

Even though caps on damages directly

affect only a small minority of cases, this

minority often accounts for a disproportionate share of total malpractice payments

(49, 142). In addition, it is the large,

unexpected claim that makes it difficult for

insurers to plan reserves. Minimizing these

large awards may allow insurers to better

match premiums to risk.

Sloan, Mergenhagen, and Bovbjerg

found that, among the many State reforms

they examined, caps on damage awards--

whether for total damages or only for

noneconomic damages--had the greatest

impact on reducing payment per paid claim

(129). However, neither type of damage

cap affected the probability that a claim

would result in payment. Caps on punitive

damages alone showed no significant

impacts on either payment per paid claim or

the probability that the claim would result

in payment.

Curiously,

Sloan found

damages sign

payment per

Zuckerman, Bovbjerg, and

that caps on noneconomic

ificantly lowered malpractice

paid claim, whereas caps on

total damages did not (161). One possible

explanation is that statutes enacting a total

cap on damages were most likely to be

immediately challenged in court because

limiting economic damages (e.g., medical

expenses) regardless of the severity of

injury has a potentially greater adverse

impact on plaintiffs than does limiting only

damages for pain and suffering. 9 Onl y

eight States have passed caps on total

damages (see ch. 2). If these statutes were

challenged immediately after enactment,

they might not have had their full potential

effect.

Zuckerman, Bovbjerg, and Sloan also

found that a cap on total damages was the

most effective reform in reducing malpractice

insurance premiums (161). Similarly,

Blackmon and Zeckhauser found that limits on

overall liability significantly reduced

premiums as well as malpractice insurers’

losses (12). The results for caps on

noneconomic damages were less consistent,

however. Blackmon and Zeckhauser found
.

Chapter 3--Impact of State Tort Reforms -65

that limits on only noneconomic and

punitive damages significantly reduced

malpractice premiums as well as insurers’

losses (12). 10 In contrast, Zuckerman,

Bovbjerg, and Sloan found no significant

effect of noneconomic damage caps on

premiums (161). Barker, however, found that

any cap on damages significantly reduced the

mean of the malpractice insurance loss ratio

in the State (an indicator of expected

premiums) (9).

To summarize. these five studies

suggest that caps on damages are effective

in lowering payment per paid claim and,

hence, malpractice insurance premiums.

The only study that assessed the effects of a

damage cap on the frequency of claims

failed to find such an effect.

Statutes of Limitations

The evidence regarding the impact of

shorter statutes of I imitations on medical

malpractice claim frequency was mixed.

Danzon found that shortening the basic

statute of limitations significantly reduced

claim frequency (30). In contrast, both

Adams and Zuckerman (2) and Zuckerman,

Bovbjerg, and Sloan (161) found that shorter

statutes of limitations raised claim frequency.

A possible explanation is that shorter statutes

of limitations force more plaintiffs to file their

suits earlier, thereby raising claim frequency

in the short run. In addition, Zuckerman,

Bovbjerg, and Sloan found no significant

effects of shorter “discovery periods” or

shorter statutes of limitations for minors

(161). Adams and Zuckerman examined the

problem from the opposite perspective. i.e.,

whether the use of the discovery rule--

which lengthens the time period for bringing a

suit--affected claim frequency (2). They

found no significant effect.

Adams and Zuckerman also compared

the frequency of claims before 1976, when

statutes of limitations were generally longer,

to the frequency of claims brought between

1976 and 1981 (2). The initial upsurge

in frequency in the first five years is not only

consistent with the findings of Zuckerman,

Bovbjerg, and Sloan (161), but it is also

consistent with one of the objectives of

lowering the statute of limitations: to force

plaintiffs to tile claims closer to the date of

injury. Whether shortening the statute of

limitations reduces the overall number of

claims filed in the long run, however, has

not been adequately studied.

Reform of statutes of limitations showed

no significant effect on payment per paid

claim in the two studies that examined this

question (129, 161 ).11 Also, the claim-level

analysis by Sloan, Mergenhagen, and

Bovbjerg found no significant effect of shorter

statutes of limitations on the probability that

a claim would result in payment (129).

Two studies examined whether shorter

statutes of limitations lowered malpractice

insurance premiums, with mixed results.

Zuckerman, Bovbjerg, and Sloan found that

shorter statutes of limitations (except those

for minors) significantly reduced such

premiums (161 ). Blackmon and Zeckhauser,

on the other hand, found no significant

effect of shorter statutes of limitations on

either premiums or losses for malpractice

insurance (12), In addition, Barker found

no significant

limitations on

insurance loss

impact of shorter statutes of

the mean of the malpractice

ratio in the State (9).

Pretrial Screening Panels

As mentioned earlier, the numerous

varieties of pretrial screening panels cannot

easily be lumped into a single binary

variable, so it is not surprising that the

results of the empirical studies were so

mixed regarding this reform. The two

studies that examined the impact of

screening panels (of any type) on the

frequency of medical malpractice claims
66- Impact of Legal Reforms on Malpractice Costs

Table 3-3--Summary of Results of Six Empirical Studies on State Medical Malpractice Reforma

Claim Payment per Insurance

Reform frequency paid claim premiums

Restrict the statute of limitations:

a.

b.

;:

Use date of event, not discovery

Shorten basic statute of limitations

for medical malpractice

Shorten statute of limitations for minors

Shorten extension of statute of

o ●

-/+/ +

o

0/0

o

-/0/0

o

limitations from date of discovery

Establish pretrial screening panels:

a. Mandatory

b. Results admissible in trial

c. Any type

Limit contingent attorney fees

Modify the standard of care:

a. Codify the standard of care

b. Do not adopt the “expanded locality rule”

c. Establish qualifications for expert

witnesses

Require or allow awards to be reduced

by amount of collateral payments:

a. Require

b. Allow

c. Either require or allow

Impose caps on damage awards:

a. Total damages

b. Noneconomic damages only

c. Punitive damages only

d. Noneconomic or punitive damages

e. Any type

Require or allow periodic payments:

a. Require

b. Allow

c. Either require or allow

Restrict the joint and several liability doctrine

o 0/0 —

o

0;0

0/+

—

0/0/ +

0/0 0/0/+ 0/0

o

●

●

o

● o ●

-/-/ -

0/0

0/0

0

—

0

0 — 0/0

- / 0

- / -

0

●

0

0

●

—

0

●

●

● —

0

0

●

●

●

0

● ●
.

Chapter 3--Impact of State Tort Reforms -67

Table 3-3--Summary of Results of Six Empirical Studies on State Medical

Malpractice Reforma (Continued)

Claim Payment per Insurance

Reform frequency paid claim premiums

Allow voluntary, binding arbitration:

a. Codify the option of arbitration for

medical malpractice + -/0/0 o

b. Allow pre-injury agreements to arbitrate o 0 0

Restrict the use of res ipsa loquitur o 0 0

Restrict the use of ad damnum clauses ● o ●

Limit the doctrine of informed consent — o ●

Allow costs awardable in frivolous suits o - / 0 o

aKey to symbols:

– Results statistically significant and in expected direction (reducing direct malpractice costs)

+ Results statistically significant and in unexpected direction (increasing direct malpractice costs)

O Results not statistically significant

. Not examined in the studies reviewed here

NOTE: Each symbol (-, + ,0, or ,) corresponds to the result of a single study. For example, “ +/-/0” means that the reform

was examined by three studies. Symbols based on the study by Danzon (Danzon, 1986) refer to her two-stage

least-squares (TSLS) regression analysis (see text).

SOURCES: E.K. Adams, and S. Zuckerman, “Variation in the Growth and Incidence of Medical Malpractice Claims,”

Journal of Health Politics, Policv and Law 9(3):475-488, Fall 1984; D, K. Barker, “The Effects of Tort Reform on

Medical Malpractice Insurance Markets: An Empirical Analysis, ” Journal of Health Politics, Policv and Law,

17(1 ): 143-161, Spring 1992; G. Blackmon, and R. Zeckhauser, “State Tort Reform Legislation: Assessing Our

Control of Risks,” in Tort Law and the Public Interest, Peter H. Schuck (cd.) (New York W,W. Norton & Co.,

1991); P.M. Danzon, “The Frequency and Severity of Medical Malpractice Claims: New Evidence,” Law and

Contemr20rarv Problems 49(2):57-84, Spring 1986; F.A. Sloan, P.M. Mergenhagen, and RR, Bovbjerg,

“Effects of Toti Reforms on the Value of Closed Medical Malpractice Claims: A Microanalysis,” Journal of

Health Politics, Policy and Law 14(4):663-689, Winter 1989; S. Zuckerman, R.R. Bovbjerg, and F. Sloan,

“Effects of Ton Reforms and Other Factors on Medical Malpractice Insurance Premiums,” Inquiry 27(2):167-

182, Summer 1990.
68- Impact of Legal Reforms on Malpractice Costs

found no significant result (30,161).

However, one of those studies found that such

panels significantly increased payment per

paid claim (161). Sloan, Mergenhagen,

and Bovbjerg found that pretrial screening

panels--whether their use was mandatory or

voluntary, or whether the screening results

could be admitted as evidence in a

subsequent trial--had no significant impact

on the probability that a claim would result

in payment (129). However, mandatory

screening panels significantly increased

payment per paid claim, whereas voluntary

screening panels significantly reduced one

measure of payment per paid claim (amount of

indemnity payment only, without “lossassociated expenses”).

A possible explanation of these mixed

findings is that pretrial screening

successfully weeds out smaller malpractice

claims. perhaps because of the added cost

of taking the claim through the pretrial

screening procedure, leaving only cases

with higher potential awards in the universe

of cases. Some defense attorneys believe

that pretrial screening panels may result in

better trial preparation, thereby allowing

plaintiffs to better develop their cases,

hence leading to larger awards (48,121).

On the other hand, such panels could raise

the cost of pursuing a claim and thereby

force the plaintiff to settle for less.

The difference in results depending on

whether the use of screening panels was

mandatory or voluntary is more difficult to

interpret. however, First, of the 26 States that

had pretrial screening panels in 1980, only

eight made the use of such panels voluntary.

Many of these were relatively small States,

and when screening is discretionary it tends

to be used infrequently (20). Consequently,

the sample size of paid claims from States

with voluntary panels was probably small.

Only one study examined whether

pretrial screening panels (of any type)

reduced malpractice insurance premiums,

finding a significant effect only on

obstetrics/gynecology premiums, but not on

general practice or general

(161). 12

Standard of’

During the 1970s, a

passed laws codifying

surgery premiums

Care

number of States

the standard of

medical care. These laws did not really

alter the legal standard used in medical

malpractice cases but instead merely

documented that physicians’ conduct must

meet the customary care provided in their

profession, as defined in the physicians

locality or similar localities (see ch. 2). Some

States also set qualification requirements

for expert witnesses who testify as to

what is the prevailing standard of care.

In addition, some States allowed the standard

of care to be established by practices outside

the immediate locality where the defendant

physician practiced (the “expanded locality

rule”).

None of the empirical studies examined

the impact of codifying the standard of care

on the frequency of medical malpractice

claims. One study examined the effect on

claim frequency of adopting an expanded

locality rule, but found no significant results

(2). Regarding payment per paid claim,

Sloan, Mergenhagen, and Bovbjerg found no

significant impact of establishing qualifications

for expert witnesses on either payment per

paid claim or the probability that the claim

would result in payment (129). Finally, in the

only study related to malpractice insurance

premiums, Barker found no significant effect

of codifying the standard of care on the mean

of the malpractice insurance loss ratio in the

State (9).

The measures of standard of care

reforms used in these three studies, however,

may not have been accurate enough to

detect any significant effects. First, with

respect to adopting an expanded locality

rule, by the time these reforms were

enacted, many courts were already using

such a rule (see ch. 2). Furthermore, moving
Chapter 3--Impact of State Tort Reforms -69

to an expanded locality would probably have

affected rural areas to a greater extent than

urban ones, because rural localities had

much more limited expert witness pools

under the strict locality rule. Because rural

areas have fewer malpractice cases, the

studies would have had difficulty detecting

anything but very large effects. Second,

codification of the existing standard of care

did not alter the legal definition of negligence,

and it is debatable whether mere codification

had a significant impact on malpractice

claim activity.

Collateral Source Offsets

The adoption of collateral source offsets

should reduce average awards; and if the

expected payment declines, fewer claims

should be filed. Together, lower awards

and fewer claims should reduce premiums.

The two studies that examined the effect

of collateral source offsets on the frequency

of medical malpractice claims (30, 161) found

that mandatory offsets had no significant

et’feet . However, Danzon’s measure that

included discretionary as well as mandatory

offsets showed a significant reduction in

claim frequency. Both of these studies also

found that mandatory collateral source offsets

significantly reduced payment per paid

claim. Danzon’s more general measure

(including discretionary as well as

mandatory offsets) also showed a significant

impact in reducing payment per paid claim.

Sloan, Mergenhagen, and Bovbjerg found

that one measure of payment per paid claim

(indemnity payment plus “loss-associated

expenses") was significantly lower in States

with mandatory collateral source offsets

(129). However, that study found

significant impacts of either mandatory

discretionary collateral source offsets on

probability that a claim would result

payment.

no

or

the

in

Blackmon and Zeckhauser (12) as well

as Zuckerman, Bovbjerg, and Sloan (161)

found no significant impact of collateral

source offsets on malpractice insurance

premiums. Nor did Blackmon and

Zeckhauser find any significant effect of

such offsets on insurers losses (12).

Moreover, Barker found no significant

impact of collateral source offsets on the

mean of the malpractice insurance loss

ratio in the State (9).

Limits on Attorney Fees

Neither of the two studies that

examined the impact of limitations on

attorney fees on the frequency of medical

malpractice claims found significant effects

(30,161). Ironically, one of these studies

found that limits on attorney fees resulted in

significantly higher levels of payment per

paid claim (161 ). This could reflect a

tendency for plaintiffs attorneys to turn

down cases with low expected payment

which would increase the average payment

per paid claim. However, Danzon found no

significant effect of attorney fee limits on

payment per paid claim (30). Moreover,

the claim-level analysis by Sloan,

Mergenhagen, and Bovbjerg found no

significant impact of such limits on either

payment per paid claim or the probability

that the claim would result in payment

(129).

Studies of the impact of these limits

on malpractice insurance premiums also

failed to find significant effects. Neither

Zuckerman, Bovbjerg, and Sloan (161)

nor Blackmon and Zeckhauser ( 12) found

any significant effects of limiting attorney

fees on premiums. and Blackmon and

Zeckhauser found no significant impact

of such 1 imitations on insurers losses

(an indicator of expected malpractice

premiums) (12).
70- Impact of Legal Reforms on Malpractice Costs

These results do not necessarily mean

that limits on attorney fees won’t affect

malpractice claims or premiums. Many of

the specific reforms of this type have not

placed absolute limits on attorney fees,

but instead give the courts discretion in

adjusting contingent fees. As one

commentator noted, lawyers may have

expected judges to be liberal (1 15). The

empirical studies, however, present no

evidence as to how the courts regulated

attorney fees. Even where courts set limits,

in certain cases those limits were close to

33 percent, the average contingency fee

without a limit. 1

3

Voluntary, Binding Arbitration

Arbitration is rarely used in medical

malpractice cases. Therefore, it is difficult to

draw conclusions regarding this type of

reform from the studies reviewed here,

especially since they produced mixed

results. Danzon found that arbitration

provisions significantly increased the

frequency of malpractice claims, but

significantly reduced payment per paid

claim (30). In contrast, Zuckerman,

Bovbjerg, and Sloan found no significant

impact of allowing pre-injury arbitration

agreements on the frequency of malpractice

claims, the amount of payment per paid

claim, or the level of malpractice insurance

premiums (161). Similarly, Sloan,

Mergenhagen, and Bovbjerg found no

significant impact of such provisions on either

payment per paid claim or the probability that

a claim would result in payment (129).

Finally, Barker found no significant effect

of codifying the option of arbitration on the

mean of a State’s loss ratio for medical

malpractice insurance (9).

Because arbitration as implemented in

the States has been voluntary and rarely

used, the power of the studies to pick up

significant effects is severely restricted. Also,

the details of an arbitration scheme may be

important in determining its effect on payment

per paid claim (and, hence, frequency and

premiums). Danzon recognized that her

findings regarding claim frequency may have

been anomalous. “since arbitration would

probably only be adopted by a minority of

patients and providers even in states with

enabling legislation” (30). Her measure

captured only those 15 States that developed

specific legislation governing arbitration of

malpractice claims. In most other States

arbitration was already an option once an

injury occurred. The enforceability of

pre-injury arbitration contracts was thU S

addressed in some States by malpractice

arbitration statutes, but in others it was

often governed by case law (see ch. 2),

the

Res Ipsa Loquitur

The only empirical study that examined

effects of restricting the use of res ipsa

loquitur on malpractice claim frequency

found no significant results (2). Similarly,

Sloan, Mergenhagen, and Bovbjerg found no

significant impact of restricting this doctrine

on either payment per paid claim or the

probability that the claim would result in

payment (129). And Barker found no effect

of this reform on the mean malpractice

insurance loss ratio in the State (9).

Informed Consent

The study by Adams and Zuckerman

was the only one that examined the effects

on malpractice claims frequency of using

an expansive (i. e., patient-oriented) doctrine

of informed consent (2). It found that, in

States that required physicians to give

patients sufficient information to enable

them to make an informed decision, 14 there

was a significantly greater number of

medical malpractice claims. However,

Sloan, Mergenhagen, and Bovbjerg found

that statutory limits on this broader doctrine

(i.e., specifying the type of information that
Chapter 3--Impact of State Tort Reforms -71

must be disclosed or mandating that the

requirements for disclosure be determined

by professional custom) did not have a

significant impact on either payment per

paid claim or the probability that a claim

would result in payment (129). None of the

empirical studies examined the impact of

changes in informed consent requirements

on malpractice insurance premiums or losses.

Costs Awardable

Only two studies examined the effect of

State laws that allowed the judge in medical

malpractice suits to make the losing party

pay all attorney fees when the suit is

frivolous or fraudulent. Zuckerman,

Bovbjerg, and Sloan found no significant

impacts of such “ costs awardable”

provisions” on medical malpractice claim

frequency, payment per paid claim, or

premiums (161). Sloan, Mergenhagen,

and Bovbjerg found no significant impact

of this type of reform on the probability

that a claim would result in payment (129).

However, that study did find that payment

per paid claim was significantly lower in

States that had enacted such a provision

( 129). With the exception of this one

finding, the results are predictable because

it is likely that few suits were judged

frivolous or fraudulent.

Periodic Payments

Only two empirical studies examined

the impact of mandatory or discretionary

periodic payments on payment per paid

claim (12. 129). Sloan, Mergenhagen, and

Bovbjerg found no significant impact either on

payment per paid claim or on the probability

that the claim would result in payment (129).

Similarly, Blackmon and Zeckhauser found

no significant impact on malpractice insurance

premiums or insurers’ losses (12). Neither

study examined the effect of this type of

State tort reform on medical malpractice

claim frequency.

Other Reforms

Each of the remaining State tort

reforms 1

5 was examined by only one study,

so no corroboration of results is possible.

These one-study results are summarized

briefly below.

■ Blackmon and Zeckhauser found

that restricting a State’s law

regarding joint and several liability

(which traditionally allows a winning

plaintiff to recover damages from

all defendants or the entire amount

from a single defendant) significantly

reduced medical malpractice

insurance premiums ( 1 2).

■ Sloan, Mergenhagen, and Bovbjerg

found that restricting the use of ad

damnum clauses (which specify at

the outset of a lawsuit the amount

of damages demanded by the

plaintiff) had no significant impact

on either payment per paid claim or

the probability that the claim would

result in payment ( 129).

SUMMARY

Our review demonstrates that empirical

evidence regarding the impact of State tort

reforms on the malpractice cost indicators

is quite limited. We focused on six

studies that used empirical methods to

systematically analyze the impacts of State

tort reforms while controlling for nontort

influences on the malpractice cost indicators.

All of these studies had serious

methodological flaws. For example, two of

the three studies of malpractice premiums or

losses failed to control for State regulation of

insurance premium increases. Moreover, as

usually happens when multiple measures of

the same concepts are used in one or more

studies, significant results tended to occur

more often among the measures that were

examined more often. Not surprisingly. the
72- Impact of Legal Reforms on Malpractice Costs

six studies often produced conflicting

results. Nevertheless, the limited available

evidence suggests

conclusions.

Reforms that

the following tentative

Significantly Reduced

Direct Malpractice Costs

The following tort reforms showed

consistent, significant impacts in reducing

one or more of the malpractice cost indicators:

■ Caps on damage awards

■ Mandatory collateral source offsets.

Reforms with Mixed or Isolated Effects

The following reforms showed either

mixed effects (i. e., some significant results

in the positive direction and some in the

negative direction) or isolated effects (i. e.,

only one significant result) on one or more

of the malpractice cost indicators:

■ Restricting the statute of limitations

■ Establishing pretrial screening panels

■ Limiting the doctrine of informed

consent

■ Allowing costs awardable in frivolous suits.

Reforms that Were Not Found to

Significantly Reduce Direct

Malpractice Costs

The following tort reforms showed no

significant impacts in reducing one or more

of the malpractice cost indicators:

■ Limits on attorney fees16

Modifying the legal standard of care

■ Mandatory or discretionary periodic

payments

■ Restricting the use of res ipsa loquitur

Reforms Examined Only by Single

Studies

As noted earlier, each of the following

reforms was examined by only one study,

so no corroboration of results is possible:

■ Restricting the joint-and-several

liability doctrine

■ Restricting the use of ad damnum

clauses.

Reforms Not Yet Systematically Studied

None of the empirical studies reviewed

in this report examined the impact of two of

the more recent types of State tort

reform on the malpractice cost indicators:

(a) alternative dispute resolution (although

four studies examined the effects of

voluntary, binding arbitration); and (b) the

use of practice guidelines as legal

of care.

Alternative Dispute Resolution

Alternative dispute resolution

an approach to avoiding formal

that includes both voluntary,

standards

(ADR) is

litigation

binding

arbitration (see the preceding section) and a

variety of nonbinding approaches. The

latter include neutral evaluation, courtannexed arbitration, summary jury trials

(SJTs), and mediation (see ch. 2 for a

description of ADR approaches). None of

these approaches has been extensively used

in medical malpractice cases. Thus, few

opportunities are likely to arise in the near

future for using systematic empirical

methods to examine the effects of ADR on

medical malpractice claim frequency,

payment per paid claim, and insurance

premiums or losses.

Of course, the fact that ADR has not

been extensively used does not preclude the

possibility that it could have a significant

impact on the malpractice cost indicators if

it were used. The direction of that impact,

however, is unknown, Arbitration may

reduce the administrative costs of resolving

certain claims, but a reduction in the cost of

resolving a claim could lead to an increase

in malpractice claim frequency. For now,

the reluctance to use ADR when it is not
Chapter 3--Impact of State Tort Reforms~ -73

mandatory, coupled with questions about its

constitutionality when mandatory, suggests

that binding ADR is unlikely to have much

of an impact on direct malpractice costs.

Use of Practice Guidelines as the Legal

Standard of Care

It will be some time before even

anecdotal evidence is available regarding the

impact of guideline-oriented tort reforms in

Maine, Minnesota. and Vermont on the

malpractice cost indicators. However,

given the limited number of guidelines

likely to be adopted and the small

percentage of claims they would be likely

to affect. a significant impact of these

reforms on overall malpractice costs does

not seem likely.

A number of factors involved in guidelines development and use may limit both

the feasibility and potential impact of tort

reforms that adopt specific guidelines

as legal standards of care (see ch. 2).

However, as their development continues,

guidelines are likely to play an increasingly

important role in determining the standard

of care under the existing system, absent

specific tort reform.

CONCLUSION

Based on the six empirical studies

reviewed in this chapter, only caps on

damage awards and collateral source offsets

appear to consistently reduce one or more

of the malpractice cost indicators. As

predicted, both reforms reduce payment per

paid claim, and caps on damages also lead

to lower insurance premiums. The

hypothesized effect that limiting potential

claim payments would discourage medically

injured patients from filing suit is not

supported by these studies. It may be

surprising that other reforms did not show

the predicted effect of reducing one or more

of the malpractice cost indicators.

Problems with malpractice claims data

make any conclusions on claim frequency

tentative at best. However, the paucity of

evidence regarding other approaches to tort

reform, particularly novel alternatives to

the present litigation system, suggests that

these conclusions on other reforms should

be tempered with a good deal of caution.

In this paper, OTA focused its

assessment of the impact of tort reforms on

the indicators that best reflect direct

malpractice costs. They may also act as

malpractice “signals” that influence

physicians’ practice patterns. However, it is

by no means certain that these measures

influence health care costs indirectly, through

signals to physicians. OTA’s larger study

of “defensive medicine” will address this

broader question of whether physicians alter

their clinical choices (most importantly, by

ordering more diagnostic tests than may be

medically indicated) at least in part out of

fear of malpractice suits. It will also

attempt to shed more light on which

malpractice signals affect physician

behavior and the potential impact of tort

reform on these signals.

Even if tort reforms do reduce medical

malpractice costs, does this mitigate the

deterrent effect on physician behavior,

removing the incentive for more thorough

diagnostic assessment of patients? If so,

does this jeopardize the overall quality of

patient care? And finally, do reduced

malpractice costs really contribute

significantly to restraining overall health

care costs? These are the ultimate

questions to be addressed in assessing the

variety of tort reforms that have been tried

in the States or proposed for national

action.
74- Impact of Legal Reforms on Malpractice Costs

Footnotes for Chapter 3

IThe final report of OTA)s assessment of defensive medicine will contain a review of the m~JOr s@leState studies. That review will include the recent study by Gronfein and Kinney (49), which compares

three States but focuses on the impact of a single tort reform (a cap on total damage awards coupled

with a patient compensation fund) in Indiana.

2The study by Adams and Zuckerman did not examine tort reforms, but instead asked whether certain

common-law doctrines -- which were used more frequently in malpractice cases during the 1970s --

were associated with higher claim frequency during that same period (2). For the sake of consistency,

our tables that summarize the results of these six studies have recast Adams and Zuckcrman’s

measures so that the expected result would be to reduce malpractice claim frequency.

3Barker used a binary variable to indicate whether or not the State’s Sla[UIC Of lil_Ilita[iOnS was greater

than 3 years (9).

4We excluded another measure employed bY Dan~on: the logarithm of [hc raw number of malpractice

claims filed (30). This measure of the sheer volume of claims tends to be higher in larger States

because it does not take into account the number of insured physicians in the State as a denominator.

5The A.M. Best Company is a private insurance rating service.

61n several States (e.g., California, New York, Indiana, and Florida), the rnalpracticc reform package

included a requirement that malpractice insurers report all malpractice claims to the State department

of insurance or the medical licensing board (141).

7Although Danzon used both ordinary least-squares (OLS) and two-stage Icast-squares (TS~)

regression analysis, she noted that the latter results “were probably more reliable” (30), Accordingly,

our summary of her results here are based only on hcr TSLS analysis. However, both hcr OLS and

TSLS results are presented in appendix C.

8Danzon examined the impact of damage caps on payment pcr paid claim, but not on claim frequency

(30).

9caps on tota] damages have been Ovcrru]ed more often than CapS on noncct)non~ic danl~g~s (105).

IOBccause punitive damages arc rarely awarded in malpractice suits (SCC Ch. ~), this reduction is

probably duc to caps on noneconomic damages.

I IDanzon examined the effect of statutes of limitations on ma]practicc claim frequency, but not on

payment per paid claim (30).

12Zuckerman, Bovbjcrg, and Sloan hypothesized that pretrial screening may bc particularly good at

screening out nonmeritorious obstetric cases or encouraging settlement (161). obstetric cases are

unique because of the emotional impact of having a severely impaired baby and the tendency to

assume that the birthing process was to blame, especially if there was no prior indication of any

impairment.

13[3A0 found that in 52 percent of claims the average attorney fcc was bctwccn 31 and 40 pcrccnt. In

about 96 percent of claims, attorney fees reprcscntcd 40 pcrccnt or Icss of the indemnity payment

(142), See also (127).
Chapter 3--Impact of State Tort Reforms -7.5

141t is not ~lcar from the study whether this is an objcctivc (i.~., reasonable patient) standard or a

subjective (i.e., particular patient) standard, or whether medical custom is rclc~rant in determining

adequacy of consent.

150nc study did not examine tort reforms, but instead asked whether certain common-law doctrines

8

■

■

were associated with higher malpractice claim frequency (2). That study found no significant impacts

for the following doctrines:

Allowing the usc of the respondeal superior doctrine (under which a hospital can be sued for the

actions of the physicians who practice at that hospital);

Restricting the use of charitable immunity as a defense by hospitals based on [heir non-profit status;

and

Restricting the usc of government immunity as a dcfcnsc by hospi[als h:iscd on their public

ownership.

160ne study found that limits on attorney fees significantly increased malpractiw payment per paid

claim (161).
Appendix A

State Medical Malpractice Reforms

EXPLANATION OF METHODS USED

BY OTA TO COMPILE DATA

The tables, figures, and accompanying

notes in appendix A were derived from a

variety of sources and synthesized by OTA

to reflect the most recent information available

on selected State medical malpractice reforms.

The primary published sources were 1991

and 1993 editions of a compendium developed

for the Federal Agency for Health Care Policy

and Research (AHCPR), 1 selected State statutes. and judicial cases. Two additional

sources were used to update. cross-check, and

supplement the AHCPR compendia.2

After compiling information from these

sources into summary tables, OTA sent draft

copies of the information to the attorneys

genera] in all 50 States on March 24, 1993,

for confirmation or amendment. Information

was changed to reflect respondents

comments. Where conflicts arose between

the attorney general response and

information found elsewhere. the attorneys

generals responses were favored.

Unresolved questions were addressed

through follow-up phone conversations

with attorney general respondents and

statutory research. The revised drafts were

sent again to all 50 State attorneys general on

June 25, 1993, for a final review and any

corrections were incorporated.

For States that responded to the first

survey only. information is current to

March 1993. For States that responded to

the second survey. information is current to

June 1993. For the 10 States3 that did not

respond to either review and the District of

Columbia, information was cross-checked and

supplemented through followup telephone

calls and/or review of the relevant State codes

where possible. Where confirmation was

not possible, information in this appendix

reflects that presented in the 1993 edition of

the AHCPR compendium.

1 us Dcpar(mcnt of Hca]th and Human SCrViCCs, Agency for Health Care Policy and Research,

‘

( Conlpcndium of State Systcms for Resolution of Medical Injury Claims,” prepared by S.M. Spernak,

Center for Health Policy Research, The Gctorgc Washington University (Rockville, MD: AHCPR,

April 1993), AHCPR Pub. No. 93-0053; U.S. Department of Health and Human Services, Agency for

Health Care Policy and Research, “Conlpcndium of State Systems for Resolution of Medical Injury

Claims,” prepared by S.M. Spcrnak and P.P. Budc[ti, Center for Health Policy Research, The George

Washington Univcrsi[y (Rockvillc, MD: DHHS, February 1991), DHHS Pub. No. (PHS)91-3474.

2Thcsc sources were: Fisk, M. C., “The Reform .Juggcrnau[ Slows Down,” The National Law Journal

15(10): 1,.34-37, NOV. 9, 1992; Amcriczm Nurses Asst~cia{ion, “Rcpor[ [o ANA Board of Directors on

Tort Reform, Part 3: Prcscnta[ion of Sclcctcd Summary of State and Local Legislation Related to

Tort Reform and Rc\icw of Insurance Company Practices and Policies Related to Nursing

Ncgligcncc with Rccom-mcndations,(’ D~ccml]cr 19[)1.

~DE, FL, HI, KS, KY,Mf$, NJ, NM, TX, Wv.

-77 -
78- Impact of Legal Reforms on Medical Malpractice Costs

Table A-l--Collateral Source Offset Provisions,a by State, 1993

Mandatory Discretionary No provision

co*

CT

FL

1A

IL*

ID

KSO*

MA*

ME

Ml

MN*

MT*

NJ

NM

NY

OH*

RI*

TN

UT

AK*

AL

AZ

CA

DE

IN

KY

MD*

N D

O

*

OR

SD

AR

DC

GAO

HI

LA

MO*

MS

NC

NE

N H

o

NV*

OK

P A

o

SC

TX

VA

v-r

WA*

WI

WV

aThe traditional collateral source rule forbade evidence of the plaintiff’s Collateral sOurCes of income

and reimbursement (e.g., medical insurance, disability payments) from being entered into evidence,

States classified as “mandatory” or “discretionary” in this table have modified the traditional evidence rule to allow certain types of collateral sources to be admitted as evidence. Statutes which

require that the plaintiff’s award be offset by certain collateral sources are classified as mandatory,

Statutes that leave the decision of whether to offset to the jury or judge are classified as discretionary, States with no provision have not modified their traditional collateral source rules, It is of note

that a number of States reduce the malpractice award by the collateral source payments, but credit

the plaintiff with any premiums he or she has paid or will pay to obtain the insurance (e.g., MN, Ml,

CT, Rl, IL and NY).

O = provision overturned,

* See additional notes on following pages.

SOURCE: Office of Technology Assessment, 1993.
Appendix A--State Medical Malpractice Reforms -79

ADDITIONAL NOTES FOR TABLE A-1

Cases Overturning Collateral Source Offset Rules:

Georgia--Denton v. Con-Way Southern Express

Inc,, 402 S.E.2d 269 (Ga. 1991) (statute

mandating evidence of collateral sources

violates guarantee of impartial and complete

governmental protection).

Kansas--see explanation below.

New Hampshire--Carson v. Maurer, 424 A.2d.

825 (N.H. 1980).

Selected Additional Information:

Alaska--Collateral source offset determined by

the court (Alaska Stat. Supp. Sees.

9.55.548; 9.17.070 (1992)).

Colorado--Collateral source offset determined

by the court (Colo. Rev. Stat. Sec. 13-64-

402 (1992)).

Illinois--Reduction of collateral source is for 50

percent of collateral payments for lost

wages or disability benefits and 100 percent of medical benefits (with exceptions),

but no more than 50 percent of the total

verdict (735 ILCS 5/2-1 205 (West 1992)).

Kansas--When claimant demands $150,000 or

more, evidence of collateral sources admissible. Reduction of award by collateral

source amount is subject, however, to

certain limitations (KSA Sees. 60-3801 -

3807 (Supp. 1992)). This statute applies to

all personal injury suits. The original statute

abrogating collateral source for medical

malpractice suits only was struck down

(FarleV v. Enqelken 740 P.2d 1058 (1987)).

Also, in Wentlinq v. Medical Anesthesia

Services, P. A., 701 P.2d 939 (Kan. 1985),

court held that collateral source offsets

were unconstitutional in wrongful death

medical malpractice cases.

Maryland--An award of damages by a medical

malpractice arbitration panel may be reduced by the amount of damages reimbursed by certain collateral sources

North Dakota--Arneson v. Olson, 270 N.W.2d

125 (N. D. 1978) held an earlier statute for

collateral source offsets unconstitutional.

Pennsylvania--The Pennsylvania Supreme

Court struck down as unconstitutional the

State statute providing for pretrial screening panels. The collateral source provision

was a part of that statute and was nullified.

Mattes v. Thommon 421 A.2d. 190 (1980).

(Md. Cts. & Jud. Proc. Code Ann. Sec. 3-

2A-05(h) (Michie 1989)). (See table A-5

and Additional Notes to table A-5 for description of Maryland’s arbitration panel

provision.)

Massachusetts--Collateral source offset determined by the court (Mass, Gen. Laws

Ann. ch. 231, Sec. 60G (Lexis 1992)).

Minnesota--Offset is mandatory if defendant

brings in evidence of payments made to

plaintiff by collateral sources (Minn. Stat.

Sec. 548.36 (1992)).

Missouri--Damages paid by defendant (or his

insurer or any authorized representative)

prior to trial may be introduced as evidence. Such introduction shall constitute a

waiver of any right to a credit against a

judgment (R. S. MO. Sec. 490.715 (1991)).

Montana--Collateral offset determined by judge

after jury verdict (Mont. Code Ann. Sec. 27-

1-308 (1992)).

Nevada--In actions against providers of health

care, damage awards must be reduced by

the amount of any prior payment made by

health care provider to the injured person

or claimant to meet reasonable expenses

and other essential goods or reasonable

living expenses (Nev. Rev. Stat. Sec.

42.020 (SUPP. 1991 )).
80- Impact of Legal Reforms on Medical Malpractice Costs

ADDITIONAL NOTES FOR TABLE A-1 (Continued)

North Dakota--Under North Dakota law,

collateral source “does not include life insurance, other death or retirement

benefits, or any insurance or benefit purchased by the party recovering economic

damages” (N. D.C.C. Sec. 32-03.2-06 (Lexis

1991). (An earlier collateral source offset

provision was overturned in the courts--see

above.)

Ohio--Collateral sources do not include insurance benefits paid for by plaintiff or employer (Ohio Rev. Code Ann. Sec. 2305.27

(Baldwin 1992)).

Rhode Island--Collateral source is mandatory if

evidence is admitted (R. i. Gen. Laws Sec.

9-19-34 (1992)).

Washington--Washington’s statute allows information on collateral source to be entered into trial, except the collateral source

rule excludes insurance purchased by the

plaintiff or insurance purchased by the

employer for the plaintiff (RCW Sec.

7.70.080). However, offset of collateral

sources is governed by case law, and in

practice there is no offset for collateral

sources. See Sutton v. Shufelberaer, 643

P.2d 920 (Ct. App. Wash. 1982); Bowman

v. Whitelock, 717 P.2d. 303 (Ct. App. Wash.

1986).

SOURCE: Office of Technology Assessment, 1993.
Appendix A--State Medical Malpractice Reforms -81

Table A-2--Caps on Damagesa and State Patient Compensation Funds, by State, 1993

Economic and No statutory PCF (Patient

Noneconomic cap noneconomic limits Compensation Fund)

AK: $500,000’

CA: $250,000

FL:

O $350/250,000

Hl: $375,000

ID: o $400,000’

KS:O $250,000’

MD: $350,000

MA: $500,000

MO: $465,000’

OR: $500,000

UT: $250,000

WV: $1,000,000

Wl: $1,000,000

AL::

O Total recovery

capped at $1

mill ion.*

co: Total recovery

capped at $1

million.

$250,000 cap on

noneconomic. *

IN: $750,000

LA: $500,000’

NE: $1,250,000

NM: $500,000’

SD: $1 ,000,000’

VA: $1,000,000

AR

AZ

CT

DC

DE

GA

1A

I LO

KY

ME

MNR

MS

MT

NC

*ND

O

NH O

NJ

NV

NY

OH O

OKR

PA

RI

SC

TN

*TX

o

v-r

WAO

WY

FL: Physicians may participate in

fund by obtaining Iiability

coverage of $250,000 per

claim and $500,000 per occurrence. Fund will pay

malpractice awards exceeding

maximum physician liability of

$250,000 per claim, up to $1

million per claim and $3 million

aggregate per policy.

IN: Provider not liable for that

portion of any malpractice

award which exceeds

$100,000 Any amount due

the plaintiff which is in excess

of the total liability of all

health care providers, shall

be paid from the PCF, with

total payments from the PCF

not to exceed $750,000.

KS: Physicians must carry

$200,000 in malpractice insurance per claim ($600,000

per annum) then can choose

one of three options for excess coverage from PCF.

For each, option, the physician pays the initial $200,000

in damages and then the

fund will pay some portion of

the remainder depending

on how the physician

chooses to distribute fund

liability across potential

claims: 1) fund liable for

next $100,000 per claim

($300,000 aggregate per

provider); 2) fund liable for

next $300,000 ($900,000

aggregate per provider);

and 3) fund liable for up to

$800,000 per claim.
82. Impact of Legal Reforms on Medical Malpractice Costs

Table A-2-Caps on Damagesa and State Patient Compensation Funds, by State, 1993 (Continued)

Economic and No statutory PCF (Patient

Noneconomic cap noneconomic limits Compensation Fund)

LA: Provider liability limited to

$100,000 for injuries or death

to plaintiff. Fund will pay total

amount recoverable for all

injuries or death of a plaintiff

exclusive of future medical

care and related benefits, up to

$400,000 for private providers.

The State pays all damages

up to $500,000 for State

health care providers.

NE: The PCF shall cover liability

exceeding $200,000 up to

$1.25 million.

NM: Health care provider liability is

PA:

SC

Wl:

capped at $100,000, with the

remainder to be paid by the

PCF. Total payment from PCF

not to exceed $500,000 per

occurrence per year.

The fund shall pay any amount

exceeding $100,000 per occurrence, up to $1 million per

claim.

The fund will pay awards in

excess of $100,000 per claim

(no upper limit).

Physicians must have $400,000

of malpractice coverage per

incident and $1,000,000 in

coverage per annum. The

fund will pay for damages

exceeding the physician’s

coverage. Each health care

provider is also assessed an

annual fee to help finance the

fund.

aNOTE: OTA’s review did not include caps that apply only, or separately, to claims against State-employed or Stateowned health care providers.

O = provision overturned,

R = provision repealed.

*See additional notes on following pages.

SOURCE: Office of Technology Assessment, 1993.
Appendix A--State Medical Malpractice Reforms -83

ADDITIONAL NOTES FOR TABLE A-2

Cases Overturning Caps on Damages:

Alabama--Moore v. Mobile Infirmary, 592

So.2d 156 (Ala. 1991) ($400,000 cap on

noneconomic and punitive damages

overturned, but $1 million cap on total

recovery not challenged--see notes below).

Florida--Smith v. Department of Insurance,

507 So.2d 1080 (Fla. 1987).

Idaho--Jones v. State Board of Medicine 555

P.2d 399 (Idaho 1976) cerl denied 431

us. 914 (1977).

lllinois--Wriaht v. Central DuPaue Hospital,

347 N.E.2d 736 (Ill. 1976).

Kansas--Kansas Malpractice Victims Coalition

v. Bell, 757 P.2d 251 (Kan. 1988) (cap on

Selected Additional Information:

Alabama--Total recovery in medical malpractice cases must not exceed $1 million. If jury returns a verdict in excess of

$1 million, judge must reduce it to $1

million or lesser amount as deemed appropriate. Mistrial declared if jury is informed of cap beforehand. Total cap is

adjusted annually to reflect changes in

the consumer price index. (Ala. Rev.

Stat. Sec. 6-5-547 (1987)) Separate cap

on noneconomic damages was overturned (see above).

Alaska--Limit does not apply to damages for

disfigurement or severe physical impairment (Alaska Stats. Supp. Sec. 9.17.010

(1992)).

Colorado--Court has some discretion to exceed cap limit (Colo. Rev. Stat. Sec. 13-

64-302 (1992)).

Florida--In arbitration, noneconomic damages limited to $250,000 per incident.

Economic damages limited to 80 percent

of wage loss and loss of earning capacity and medical expenses, offset by collateral sources, If defendant refuses to

total damages and noneconomic damages

in medical malpractice cases overturned).

New Hampshire--Branniaan v. Usitalo, 587

A.2d 1232 (N.H. 1991).

North Dakota--Arneson v. Olson, 270 N. W.2d.

125 (N.D. 1978).

Ohio--Morris v. Savoy, 576 N.E.2d 765 (Ohio

1 991).

Texas--Lucas v. U. S., 757 S.W.2d 687 (Tex.

1988); Ba~tist Hospital of S.E. Texas v.

Barber, 672 S.W.2d 296 (Tex. App.

1984), afl’d. 714 S.W.2d 310 (Tex. 1986).

Washington--Sophie v. Fibreboard Caporation, 771 P.2d 711 (Wash. 1989).

arbitrate, the claim will proceed to trial

and there will be no limit on damages. In

addition, if plaintiff wins at trial, ~he will

be awarded prejudgment interest and

attorney fees up to 25 percent of award.

If claimant rejects arbitration, noneconomic damages at trial limited to

$350,000. Economic damages limited to

80 percent of wage losses and medical

expenses (Fla. Stat. Sees. 766.207-209

(1993 Supp.)). This provision was recently challenged. The trial court found

the provision unconstitutional, as did the

District Court of Appeals. However, the

Supreme Court of Florida reversed

holding the limitation on damages imposed if the plaintiff does not accept

arbitration is not unconstitutional.

University of Miami v. Ec~larte, 585 So.2d

293 (Fla. App. 3 Dist. 1991) reversed arm’

remanded University of Miami v. Echarte,

618 So.2d 189 (Fla. 1993).

Idaho--Original cap applied to malpractice

suits only and was overturned (see

above). Existing cap applies to all torts.

Cap increases or decreases yearly ac-
84- Impact of Legal Reforms on Medical Malpractice Costs

ADDITIONAL NOTES FOR TABLE A-2 (Continued)

cording to the State’s adjustment of the

average annual wage (Idaho Code Sec.

6-1603 (Lexis 1993)).

Kansas--Original cap for malpractice suits

only was overturned (see above). Existing

cap applies to all personal injury suits.

Louisiana--The total amount of damages for

a medical malpractice claim against a

“qualified provider” may not exceed

$500,000, plus interest and costs, exclusive of future medical care and related

benefits. Qualification under the patient

compensation fund requires a private

health care provider to pay into the fund

and provide evidence of insurance up to

$100,000 per claim. “Qualified providers”

exclude State health care providers. For

qualified providers, the provider is liable

for up to $100,000 and the State patient

compensation fund for the remaining

amount not to exceed $400,000 exclusive of future medical care and related

benefits. For State health care providers,

total damages, exclusive of future medical care and related benefits, may not

exceed $500,000 (WR.S. Sec. 40:1299.42-

45; IA-R.S. Sec. 40: 1299.39-39.1) Future

medical expenses and related benefits in

excess of $500,000 are paid as submitted.

Massachusetts--Pain and suffering capped

at $500,000 unless there is substantial or

permanent loss or impairment of bodily

function or substantial disfigurement or

other circumstances making limitation

unfair (Mass. Gen. Laws Ann. ch. 231,

Sec. 60H (Lexis 1992)).

Michigan--Noneconomic damages limited to

$225,000 unless there has been a death,

intentional tort, injury to reproductive

system, foreign body wrongfully left inside the patient’s body, concealment of

injury by health care provider, limb or

organ wrongfully removed or patient has

lost vital bodily function. The limit on

damages increases each year by the increase in Consumer Price Index (M.C. L.

SOURCE: Office of Technology Assessment, 1993.

Sec. 600.1483 (1990)). The exceptions

to the cap are so extensive that, as of

August 1993, the cap had yet to be applied to a single case (154).

Missouri--Noneconomic damages recoverable by injured party capped at $465,000

per defendant per occurrence (1993

limit). Original limit was $350,000, but

this is adjusted annually to reflect

changes in the implicit price deflator for

personal consumption published by the

U.S. Department of Commerce (R. S.MO.,

Sec. 538.210 (1986)).

New Mexico--The limitation on caps on

damages does not apply to past and future medical care and related benefits

(N.M. Stat. Ann. Sec. 41-5%,41-5-7 (Michie

1989)). These expenses will be paid on

an ongoing basis. In 1995, the cap on

damages will be increased to $600,000

and the Patient Compensation Fund will

require the physician to be responsible for

the first $200,000 of a malpractice claim

(N.M. Stat. Ann. Sec. 41-5-6 (Michie 1989)).

North Dakota--Awards in excess of $250,000

may be reviewed for reasonableness

(N.D. C.C. Sec. 32-03.2-08 (Lexis 1991)).

South Dakota--South Dakota’s medical malpractice cap is currently being challenged

in the court on constitutional grounds

(Schultz, J. S., Legal Counsel, Division of

Administration, Office of Administrative

Services, Department of Health, South

Dakota, letter to the Office of Technology

Assessment, U.S. Congress, Washington,

DC, April 2, 1993).

Texas--The $500,000 limit on damages in

medical malpractice (Vernon’s Texas Civil

Stat. Art. 4590i, Sec. 16.02-11.03 (Supp.

1992)) was struck down as unconstitutional

in Lucas v. U. S., 757 S.W.2d 687 vex.

1988). The Texas Supreme Court

subsequently decided that the damage

limitation was constitutional in wrongful

death cases only (Rose v. Doctors HOSP.,

801 S.W.2d 841 (Tex. 1990)).
—. —

Appendix A--State Medical Malpractice Reforms -85

Table A-3--Periodic Payment of Awards,a by State, 1993

Mandatory Discretionary No provision

AL > $150,000’

AZ

CA > $50,000

co >$150,000

IL > $250,000’

LA > $500,000’

ME > $250,000

Ml

MO >$1 00,000’

NM

OH >$200,000

SD >$200,000

UT >$100,000

WA >$100,000’

AK*

AR >$100,000

CT > $200,000*

DE

FL >$250,000

1A

ID >$100,000

IN

MD

MN >$100,000

MT >$100,000

ND*

NY > $250,000’

OR

RI > $150,000’

SC >$100,000

DC

GA

HI

KSO

KY

MA

MS

NC

NE

NH O

NJ

NV

OK

PA

TN

TX

VA

VT

WI

aperiodic payment provisions are often not triggered unless the award reaches a threshold amount The specific

thresholds are noted parenthetically in the table, Periodic payment provisions apply only to future damages. The

schedule of payments is either negotiated by the parties or determined by the court. Some statutes offer guidelines for

determining the schedule, The mandatory category includes statutes in which periodic payment is mandatory upon

reaching the threshold or upon unilateral request by defendant or plaintiff.

O = Provlslon overturned,

* See additional notes on following page.

SOURCE Office of Technology Assessment, 1993
86- Impact of Legal Reforms on Medical Malpractice Costs

ADDITIONAL NOTES FOR TABLE A-3

Cases Overturning Periodic Payment Provisions:

Kansas--Kansas Malpractice Victims Coalition

v. Bell, 757 P.2d 251 (Kan. 1988).

Selected Additional Information:

Alabama--A recent Alabama Supreme Court

case overturned a periodic payment

provision that applied to personal injury

suits, excluding malpractice. This provision was similar to the medical malpractice periodic payment provision, thereby

calling its constitutionality into question

(Clark v. Container Corp., 589 So.2d 184

(Ala. 1991)).

Alaska--Periodic payment of future damages

is discretionary in personal injury cases

except if requested by injured party

(Alaska Stat. Supp. Sec. 09.17.040

(1992)).

Connecticut--When award reaches $200,000

or more, parties have 60 days to negotiate periodic payment agreement. If no

agreement reached, a lump sum award

will be awarded (Corm. Gen. Stat. Sec.

52-225 d).

Florida--Mandatory periodic payment of future losses exceeding $250,000, but defendant may elect to pay lump sum for

future economic loss and expenses, reduced to future present value (Fla. Stat.

Sec. 766.78 (1986)).

Illinois--Both parties can agree to elect periodic payment, or, if future damages exceed $250,()()(), plaintiff can Unk3tWi31!y

elect periodic payment. Defendant can

elect periodic payment if: 1 ) the future

economic damages are in excess of

$250,000, 2) defendant can produce a

security (e.g. bond, annuity) in the

amount of the claim for both past or future damages, or $500,000, whichever is

New Hampshire--Carson v. Maurer, 424

A.2d 825 (N.H. 1980).

less, and 3) future damages likely to occur over a period of more than one year

(735 ILCS Sec. 5/2-1705 (West 1992)).

Louisiana--If damages exceed $500,000, the

PCF or the State pays future medical

care and related benefits as they are

submitted. (See table A-2 for a description of Louisiana’s cap on damages provision. )

Missouri--Mandatory periodic payment of

future damages at request of any party

(R. S. MO. Sec. 538.220, (1991)).

New York--Any requirement to pay periodically applies to no more than the portion

of future damages in excess of $250,000.

The parties may agree to lump sum

payments of future damages otherwise

payable periodically (N.Y. CPLR Sec.

5031 (McKinney 1992)).

North Dakota--The court has discretion to

permit the trier of fact to make a special

finding regarding future economic damages if an injured party claims future

economic damages for continuing institutional or custodial care that will be required for a period of more than two

years (N. D.C.C. Sec. 32-03.2-09 (1989)).

Rhode Island--Mandatory conference for

purposes of determining viability of voluntary agreement for periodic damage

(R.1. Gen. Laws Sees. 9-21-12; 9-12-13

(Lexis 1991 )).

Washington--Mandatory at the request of

parties (Wash. Rev. Code Sec. 4.56.260

(1986)).

SOURCE: Office of Technology Assessment, 1993.
Appendix A--State Medical Malpractice Reforms -87

Table A-4--Statutes of Limitations,a by State, 1993

Years within Years within Maximum number Foreign object

date of injury date of discovery of years exception**

AL:

AK:

AR:

AZ:

CA:

co:

CT:

DC:

DE:

FL:

GA:

Hl:

ID:

IN:

IL:

1A:

KS:

KY:

LA:

MA:

ME:

MD:

Ml:

MN:

MS:

MO:

2 years 6 months

*2 years

2 years

1 year

2 years

2 years

4 years

2 years 1 year

3 years

3 years

3 years

3 years 1 year

2 years

3 years

2 years

2 years

2 years*

3 years

2 years 4 years

5 years

6 years

1 year

2 years

2 years

2 years

2 years

2 years

1 year

1 year

2 years 1 year*

4 years

6 years

4 years

5 years

3 years

7 years

3 years

6 years

2 years

1 year*

3 years

3 years

5 years

2 years*

2 years*

General Exception

Upon “reasonable discovery”

Exception for minors only

6 months

3 years

6 months

2 years

2 years 10 years 2 years after discovery

10 years max.

MT:

NE:

NV:

NH:

NJ:

NM:

NY:

NC:

ND:

OH:

OK:

OR:

PA:

Rl:

SC:

SD:

TN:

TX:

UT:

3 years

2 years

4 years

3 years

3 years*

2 years, 6 months

3 years

3 years

1 year

2 years

3 years

2 years*

5 years

10 years

1 year

4 years 1 year after discovery, 10 year max

2 years 6 years

1 year

2 years

2 years

2 years

3 years

3 years

3 years 0’

5 years

2 years

3 years

3 years

2 years

2 years*

6 years 2 years

1 year 3 years 1 year

2 years 4 years 1 year
88- Impact of Legal Reforms on Medical Malpractice Costs

Table A-4--Statutes of Limitations,a by State, 1993 (Continued)

Years within Years within Maximum number Foreign object

date of injury date of discovery of years exception**

VT: 3 years 2 years 7 years 2 years

VA: 2 years 10 years 1 year

WA: 3 years 1 year 8 years 1 year

WV: 2 years 2 years 10 years

WI: 3 years 1 year 5 years 1 year

WY: 2-2.5 years 2 years

Column 1: Statutory

time limit for bringing a

suit is measured from

the time the injury occurs or from the date of

termination of the medical treatment that led to

the claim.

Explanatory Notes for Table A-4

Column 2: The statutory time limit for bringing suit is measured

from the time at which

the plaintiff could have

reasonably discovered

the injury. Often States

allow the time limit to

run from either the time

of injury or the time of

discovery, depending

on the nature of the injury.

Column 3: The maximum period in which a

claim can be brought,

regardless of whether the

limit is measured from

the date of injury or act or

the date of discovery. In

most States, this maximum does not apply to

the foreign body exception (see column 4).

Column 4: Because of

the difficulty of discovering a foreign body (e.g., a

surgical sponge) left

inside a patient during

invasive procedures, a

number of States make

special exceptions to the

statute of limitations for

these cases.

aThis table does not cover special provisions for minors, disabled plaintiffs or cases involving fraud Or concealment on the Pan of

the healthcare provider,

O = provision overturned.

* See additional notes on following page.

** Wdhin year of discovery, maximum number of years do not apply unless stated,

SOURCE: Office of Technology Assessment, 1993,
Appendix A--State Medical Malpractice Reforms -89

ADDITIONAL NOTES FOR TABLE A-4

Selected Additional Information:

Alaska--General statute of limitations is two

years from date the “cause of action” accrues (Alaska Stat. Sec. 09.10.070 (1962)).

Cause of action does not accrue until person discovers or reasonably should have

discovered injury. (Dalkovski v. Glad, 774

P.2d 202 (Alaska 1989); Cameron v. State,

822 P.2d 1362 (Alaska 1991)).

Georgia--The statute of limitations in a medical malpractice action may be tolled (i. e.,

does not accrue) in cases where the

parties agree to submit the case to arbitration (0. C.G.A. Sec. 9-9-63).

Louisiana--Time limitation is suspended

upon filing a request for review by a

medical review panel until 90 days

following issuance of the panels opinion

(lA-R.S. 40:1299.391A (2)(a); LA-R.S.

40:1299.47A (2)(a)).

Michigan--Special exceptions made in cases

involving undiscovered injuries to reproductive system or the presence of a foreign body wrongfully left inside the patient, and in cases where the discovery

of basis for claim was prevented by the

fraudulent conduct of the health care

provider (M.C. L. Sec. 600.5838a(2) (a-c)

and (3) (1990)). Claims may be brought

two years from injury if discoverable or

six months from discovery, whichever is

later (M.C.L. Sec. 600.5805(4) (1990)).

Minnesota--Statute of limitations is 2 years

from termination of treatment (Minn. Stat.

Sec. 541.07 (1992)). Discovery rule has

been rejected (Francis v. Hansing 449 N.W.

2d 479 (Minn. Ct App. 1989); Willette v.

MaVo Foundation, 458 N.W. 2d 120 (Minn.

Ct. App. 1990)).

New Jersey--Years within date of injury apply

after accrual of claim (N.J. Rev. Stat. Sec.

2A: 14-2 (1986)). Claim accrues upon

reasonable discovery of injury.

New Mexico--The statute is tolled upon

submission to pretrial screening panel

and shall not run until 30 days after panel

makes final decision (N. M. Stat. Ann.

Sec. 41-5-22 (Michie 1989)).

Ohio--Suit must be brought within one year

from the date of a “cognizable event” or

termination of the physician-patient relationship, whichever occurs later (Flowers

v. Walker, 589 N.E.2d 1284 (Ohio 1992);

Frvsinqer v. Leech, 512 N.E.2d 337 (Ohio

1987)).

Oklahoma--Oklahoma’s statute includes a

limitation on damages brought 3 years

after the injury, but limitation declared

unconstitutional. Wofford v. Davis, 764

P.2d 161 (Okla. 1988); Revnolds v. Porter,

76o P.2d 816 (Okla. 1988).

Texas--Statute has been held unconstitutional by the Texas Supreme Court when

the injury was not discoverable (See e.g.

Neaale v. Krusen, 678 S.W.2d 918 (Tex.

1984); Neaqle v. Krusen, 678 S.W.2d 11

(Tex. 1985); Deluna v. Rizkallah, 754

S.W.2d 366 (App. 1st Dist. 1988); but see

Rascoe v. Anablawi, 730 S.W.2d 460

(App. 9th Dist. 1987)). The courts have

essentially modified the statute into a

discovery standard.

SOURCE: Office of Technology Assessment, 1993.
90 - Impact of Legal Reforms on Medical Malpractice Costs

Table A-5--Pretrial Screening Panels, by State, 1993

Pretrial Screening Panelsa

Mandatory Voluntary No provision

AK*

HI*

ID*

IN

LA*

MA*

MD*

ME

Ml

MT

NE*

NM*

NV

TN

UT

VT*

AR AL

CT AZR

DE* CA

KS* co*

NH* DC

VA FLO

GA

1A

I LO*

KY

MN

MOO

MS

NC*

N D

R

N J

R

N Y

R

*

OH

OK

OR

PAO*

R l

o

Sc

SD

TX

WA

@ *

WY

O

a“Mandatory” includes provisions that allow a waiver of the pretrial screening process upon the request of one or both parties.

“Voluntary” refers to provisions that allow but do not require parties to submit their claim to pretrial screening panels.

R

= Provision repealed

O = provision over-turned

* See additional notes on following pages.

SOURCE: Office of Technology Assessment, 1993.
Appendix A--State Medical Malpractice Reforms -91

ADDITIONAL NOTES TO TABLE A-5

Cases Overturning Pretrial Screening Panels:

Florida--Aldana v. Holub, 381 So.2d 231 (Fla.

1980).

lllinois--Bernier v. Burrio, 497 N.E.2d 763 (Ill.

1986).

Missouri--State ex rel. Cardinal Glennon

Memorial Hospital v. Gaertner, 583 S.W.2d

107 (Me. Bane. 1979).

Pennsylvania--Mandatory nonbinding arbitration panel provision struck down by

Selected Additional Information:

Alaska--Mandatory unless the parties agree

to arbitrate or the court determines an

advisory panel is not necessary (Alaska

Stats. Sec. 09.55.536 (Lexis 1992)).

Colorado--Court may refer cases for mediation at its discretion (Colo. Rev. Stat.

Sec. 13-22-301 et. seq. (1992)). In addition, the State requires in every action

against a licensed professional that the

plaintiff file a “Certificate of Review” declaring that the plaintiff has consulted a

person with expertise in the area of the

alleged conduct and the expert has

concluded that the filing of the claim

does not lack substantial justification

(Colo. Rev. Stat. Sec. 13-20-602 (1987)).

Delaware--Any party can demand that a

claim be submitted to a “malpractice

screening panel. ” Results are admissible

as prima facie evidence at any subsequent trial. Expert witness testimony

may be required for panel (Del. Code

Ann. tit. 18, Sees. 6801-6814 (1976)).

Hawaii--Mandatory submission of claim to

“medical conciliation panel” but decisions, conclusions, findings, or recommendations of panel are not admissible

at trial (Hawaii Rev. Stat. Sees. 671-11 et.

seq. (Lexis 1992)).

Idaho--Proceedings of informal pretrial

screening are confidential and not admissible at any subsequent trial (Idaho

Code Sees. 6-1001-1011 (1976)).

Pennsylvania Supreme Court in Mattes v.

Thompson, 421 A.2d 190 (Pa. 1980) and

Heller v. Frankston, 475 A.2d 1291 (Pa.

1984).

Rhode island--Boucher v. Saveed, 459 A.2d

87 (R.1. 1983).

Wyoming--Hoem v. State, 756 P.2d 780

(wyO. 1988).

Illinois--The State requires medical malpractice plaintiffs to file an affidavit and report

of a reviewing health care professional

supporting his or her determination that

a meritorious cause of action exists.

This may be referred to as a “certificate

of review” (735 ILCS 5/2-622 (West

1992).

Kansas--Decision of panel is admissible at

subsequent trial (Kan. Stat. Ann. Sees.

60-3501-3509 (1987)).

Louisiana--Pretrial screening mandatory

unless both parties agree to waive it (LaR.S. Sec. 40:1299 .47 B(C).

Maine--Mandatory pretrial screening, except

if parties agree to waive. Decision is

admissible in subsequent trial only if

unanimous and unfavorable to claimant

as to negligence or causation (24 Me.

Rev. Stat. Ann. Sec. 2857 (1990)).

Maryland--All medical injury claims must be

submitted to a “health claims arbitration

panel” for review prior to trial, unless all

parties agree in writing to waive the requirement (which rarely occurs). Although

this is called an arbitration panel, it

operates more like a pretrial screening

panel, with very formal rules of discovery

and procedure. The Panel’s decision on

fault and is admissible at subsequent trial

and is “presumed to be correct” (Md. Cts.

& Jud. Proc. Code Ann. Sec. 3-2A43 to 46

(Michie 1989)). The statute was un-
92- Impact of Legal Reforms on Medical Malpractice Costs

ADDITIONAL NOTES TO TABLE A-5 (Continued)

successfully challenged by plaintiffs on

constitutional grounds, Attorney General

v. Johnson, 385 A.2d 57 (Md. 1978)

appea/ dismissed 439 U.S. 805 (1978).

Massachusetts--If the panel finds for the

defendant and the plaintiff goes to court,

they must first file a bond of at least

$6000 that will be payable to the defendant if plaintiff ultimately loses bond covers court costs and fines. For indigent

plaintiffs, the amount of the bond may be

reduced, not eliminated (Mass. Ann.

Laws ch. 231, Sec. 60B (Lexis 1992)).

Nebraska--Parties can agree to waive the

panel (Neb. Rev. Stat. Sec. 44-2840(4)

(1988)).

New Hampshire--Decision of panel not admissible at subsequent trial (N. H. Rev.

Stat. Ann. Sec. 519-A:l to -A:1O (1972)).

New Mexico--Decision of panel not admissible at subsequent trial (N. M. Stat. Ann.

Sec. 41-5-20 (Michie 1989)).

New York--A precalender conference in each

malpractice case is mandated by law in

order to promote settlement, simplify issues and set a timetable for discovery

and further judicial proceedings. There

is no formal hearing on the merits of the

case (N.Y. CPLR Sec. 3406 (McKinney

1985)).

North Carolina--Pilot program (ends in

1995) in which parties to Superior Court

civil litigation may be required at the

court’s discretion to attend a pretrial settlement conference conducted by a mediator (N.C. Gen. Stat. Sec. 7A-38(1991)).

Pennsylvania--Panels providing “mandatory

nonbinding arbitration” were ruled unconstitutional (see above). However,

these panels continued to exist and hold

“voluntary nonbinding” settlement conferences. In addition, some jurisdictions

have standing judicial orders for pretrial

settlement conferences for all medical

malpractice cases.

Vermont--[ implementation of the following

provisions (part of a law passed in 1991)

is contingent on future passage of a universal health care coverage plan.]

Requires all medical malpractice claims be

submitted to nonbinding arbitration prior to

a trial. Parties may agree in advance that

the arbitrator’s decision will be limited to

matters of law. If parties do not agree to

make the arbitration decision binding,

they can proceed to trial. Arbitration

decision is admissible at trial but is not

definitive (12 V.S.A. Sees. 701 et seq.

(1991 )).

Washington--Mandatory mediation of all

medical malpractice claims prior to trial.

Results not admissible at subsequent trial

unless both parties agree (State of

Washington, Engrossed Second Substitute

Senate Bill 5304, 53rd Legislature, 1993

Regular Session).

Wisconsin--Repealed VOI untary pretrial

screening provision and replaced with

mandatory mediation for all medical injury claims ((Wis. Stat. Sees. 655.01-.03

(1977--repealed in 1986; Wis. Stat. Sees.

655.42 et seq. (1985--amended 1989)).

SOURCE: Office of Technology Assessment, 1993.
Appendix A--State Medical Malpractice Reforms -93

Table A-6--Attorney Fee Limits,a by State, 1993

Court-determined/

Sliding scale Maximum % court approved No statutory limits

CA: 40% of first $50,000

33.33% of next $50,000

25°/0 of next $50,000

15°/0 damages that exceed $600,000

CT: 33.33% of first $300,000

25°/0 of next $300,000

20% of next $300,000

15% of next $300,000

10% damages that exceed $1.2 million

DE: 35% of first $100,000

25% of next $100,000

10% of damages that exceed $200,000

IL: *33.33% of first $150,000

25% of next $850,000

20% of damages exceeding $1 million

MA: 40% of first $150,000

33.33% of next $150,000

30% of next $200,000

25% of damages that exceed $500,000*

ME:33.33% of first $100,000

25°A of next $100,000

20% of damages that exceed $200,000

NJ: 33.33°4 of first $250,000

25°A of next $250,000

20°A of next $500,000

Amount shall not exceed 25°/0 for a

minor or an incompetent plaintiff

NY: 30°/0 of first $250,000

25°/0 of next $250,000

20°/0 of next $500,000

15% of next $250,000

10% of damages exceeding $1.25 million

IN-15%* AZ

MI-33.33% HI

OK-500/o 1A

TN-33.33% KS

UT-33.33°A MD*

NE

N H

O

*

WA

AK

AL

AR

co

DC

FLR

GA

ID

KY

LA

MN

MO

MS

MT

NC

ND

NM

NV

OH

ORR

PAO

RI

SC

SD

TX

VA

VT
94- Impact of Legal Reforms on Medical Malpractice Costs

Table A-6--Attorney Fee Limits,a by State, 1993 (Continued)

Court-determined/

Sliding scale Maximum % court approved No statutory limits

Wl: 33.33% of first $1 million

OR 25% of first $1 million recovered if

liability is stipulated within

180 days, and not later than 60

days before the first day of trial and

20% of any amount exceeding $1 million

aNoTE. Most attorney fee limits are not direct limits on the amount attorneys can charge their ClientS. Rather, they are limits on

the portion of the damage award that may go toward attorney fees,

O = Provision overturned,

R = Provision repealed.

* See additional notes on following page.

SOURCE: Office of Technology Assessment, 1993.
Appendix A--State Medical Malpractice Reforms -95

ADDITIONAL NOTES FOR TABLE A-6

Cases Overturning Limits on Attorney Fees:

Pennsylvania--Mattos v. Thompson (421 A.2d

190 (Pa. 1980)) and Heller v. Frankston

(475, A.2d 1291 (Pa. 1984)) declared the

Health Care Services Malpractice Act

unconstitutional because of its mandatory

arbitration provision. These rulings also

Selected Additional Information:

Illinois--Where attorney performs extraordinary services involving more than usual

participation of time and effort, the attorney may apply to the court for additional

compensation (735 ILCS Sec. 5/2-1 114

(1992)).

Indiana--For compensation paid from State

Patient Compensation Fund, attorney

fees may not exceed 15 percent of payments (Burns Ind. Code Sec. 16-9.5-5-1.

(Lexis 1992)). However, there are no limits

on attorney fees for funds not paid out of

the Patient Compensation Fund.

nullified the attorney fee limitations of the

Act.

New Hampshire--Carson v. Maurer (424 A.2d

825 (N. H. 1980)) overturned an earlier

provision. Another provision has since

been implemented.

Massachusetts--Court will reduce attorney

fees further if they cause plaintiff’s final

compensation to be less than unpaid past

and future medical expenses (Mass. Gen.

Laws Ann. ch. 231 Sec. 601 (1986)).

Maryland--Only when legal fees are in dispute must the court or pretrial screening

panel approve fees before lawyer collects

(Md. Cts. Jud. Proc. Code Ann. Sec. 3-2A07 (Michie 1989)).

New Hampshire--Court determined attorney

fee limits apply only if fees are greater

than $200,000 (N.H. Rev. Stat. Ann. Sec.

508:4-e (1986)).

SOURCE: Office of Technology Assessment, 1993,
96- Impact of Legal Reforms on Medical Malpractice Costs

Table A-7--Arbitration Provisionsa by State, 1993

Specific provision for General arbitration

medical malpractice claims provision

AK AL NC

CA AR NDR

co* AZ NE*

FL* CT NH

GA DC NM

HI* DE NV

IL 1A OK

LA* ID OR

Ml IN PA

NJ* KS RI

NY* KY SC*

OH* MA TN

SD MD TX*

UT* ME VT

VA MN WA

MO WI*

MS

MT WY

aNOTE: voluntary, binding arbitration provisions only, unless otherwise noted. This table clo= not indiCa@

statutory provisions for court-annexed, nonbinding arbitration. Several States have provisions authorizing

mandatory, nonbinding arbitration for civil suits where expected damages are below a certain threshold (most

thresholds range from $10,000 to $50,000). However, because the vast majority of medical malpractice cases

involve expected awards in excess of these thresholds, the provisions are rarely relevant to medical

malpractice, One exception is the State of Hawaii, which requires court-ordered nonbinding arbitration for all

civil tort actions having a probably jury award (exclusive of costs and interest) of $150,000 or less (Hawaii Rev.

Stats. Sec. 601-20 (Lexis 1992)). However, medical malpractice claimants may elect to bypass court-ordered

arbitration if a decision has been rendered under the State’s mandatory medical malpractice pretrial screening

provision (Hawaii Rev. Stats. Sec. 671-16,5 (Lexis 1992)).

bMany States have adopted the Uniform Arbitration Act (UAA) (Uniform Arbitration Act, Uniform Laws Annotated

(Vol. 7) (St. Paul, MN: West Publishing Company, 1992)).

R = provision repealed

O = provision overturned

* See additional notes on following pages,

SOURCE: Office of Technology Assessment, 1993.
.—

Appendix A--State Medical Malpractice Reforms -97

ADDITIONAL NOTES FOR TABLE A-7

Selected Additional Information:

Colorado--A medical malpractice insurer can

not require a physician to utilize arbitration agreements with patients as a condition of malpractice insurance (Colo. Rev.

Stat. Sec. 13@403 (1992)). Mandatory

arbitration pilot program for all claims

ended July 1, 1990 (Colo. Rev. Stat. Sec.

13-22-402).

Florida--In any arbitration, noneconomic

damages limited to $250,000 and economic damages limited to past and future medical expenses and 80 percent of

wage loss and loss of earning capacity.

Defendant will pay claimant’s reasonable

attorney fees up to 15 percent of award,

reduced to present value. Defendant will

also pay all costs of arbitration proceedings and fees of arbitration. If defendant

refuses to arbitrate, the claim will proceed to trial and there will be no limit on

damages. In addition, if plaintiff wins at

trial, she will be awarded prejudgment

interest and attorney fees, up to 25 percent of award. If claimant rejects arbitration, non-economic damages at trial limited to $350,000. Economic damages

limited to 80 percent of wage losses and

medical expenses (Fla. Stat. Sees. 766.207,

766.209 (1993 Supp.)). This provision was

recently challenged. The trial court found

the provision unconstitutional, as did the

District Court of Appeals. However, the

Supreme Court of Florida recently held

the limitation on damages imposed if the

plaintiff does not accept arbitration is not

unconstitutional. Un”Nersitv of Miami v.

Echarte, 585 So, 2d. 293 (Fla. App. 3 Dist.

1991 ) reversed and remanded University

of Miami v. Echarte, 618 So.2d 189 (Fla.

1 993).

Hawaii--Mandatory nonbinding arbitration for

all civil actions in tort having probable

jury award value exclusive of costs and

interest of $150,000 or less (Hawaii Rev.

Stat. Sec. 601-20 (1986)). Medical malpractice claims may bypass court ordered arbitration after the claim has been

submitted to a medical claim conciliation

panel that has rendered a decision (Hawaii

Rev. Stat. Sec. 671.16.5 (Lexis 1992)).

Louisiana--No arbitration for claims against

State (public) health care providers (LAR.S. Sec. 40:1299.39.1A(1 )). No arbitration for claims against health care providers

who are not “qualified” under the PCF

requirements (lAR.S. 40:1299.41 (D)).

Nebraska--Pre-in jury arbitration agreements

are not presumed to be valid, enforceable and irrevocable (R. R.S. Neb. Sec.

25-2602 (Lexis 1992)).

New Jersey--Voluntary arbitration of medical

injury claims upon written agreement if

greater than $20,000. Applies to all personal injury torts except certain automobile claims (NJ Stat. Sec. 2A:23A-20

(1991)).

New York--Allows defendant to concede liability if the plaintiff agrees to arbitrate. If

plaintiff refuses, defendant’s concession

of liability cannot be used for any other

purpose (N.Y. CPLR Sect 3045 (McKinney

1991)). HMOS can put arbitration clauses

in contract, but cannot require arbitration

as a condition of joining HMO (N.Y. Public

Health \ 4406-2 (McKinney 1991)).

Ohio--The Ohio statute permits parties to

submit a claim to nonbinding arbitration

or to enter an agreement to submit the

claim to binding arbitration. Such

agreements may be made pre-injury.

(Ohio Rev. Code Sees. 2711.21-271.24

(1992)). The former provision which requiring submission to arbitration prior to

trial and allowed the arbitration decision

to be entered into subsequent judicial
98- Impact of Legal Reforms on Medical Malpractice Costs

ADDITIONAL NOTES FOR TABLE A-7 (Continued)

proceedings was declared unconstitu- attorneys sign written opinions

tional by a lower court. Simon v. St. effect (Vernons Ann. Tex. Civ. St.

Elizabeth Medical Center 355 N.E.2d 903 (1992)).

(Ohio Ct. Common Pleas 1976).

South Carolina--Statutory provision that sets

forth conditions under which arbitration

agreements for existing and future controversies will be considered valid, enforceable and irrevocable, does not apply to arbitration agreements for personal injury claims (S. C. Code Ann. Sec.

15-48-10 (1991)).

Texas--Uniform Arbitration Act procedures

only apply to personal injury if upon advice of counsel to both parties and both

Utah--Upon written agreement by all

to this

art. 224

parties,

the mandatory prelitigation hearing panel

proceeding may be considered a binding

arbitration hearing and proceed under

the provisions of the general arbitration

statute (Utah Code Ann. Sec. 78-14-16

(1985).

Wisconsin--Mediation required prior to initiating or continuing court action (M/is.

Stat. Sec. 655.465 et. seq. (1989-1990)).

Therefore, general arbitration provision

unlikely to be used.

SOURCE: Office of Technology Assessment, 1993.
Appendix B

Constitutional Challenges to Malpractice Reforms: Implications for Federal Reform

The fact that certain tort reforms have

been found to violate State constitutions is

important when considering whether and

how to implement malpractice tort reform

at the Federal level. A number of the reforms examined in this report have been

challenged in State courts, and in some

cases they have been overturned or repealed

(see app. A). OTA has not undertaken an

extensive review of these cases; however,

caps on damages and pretrial screening panels

appear to have been particularly vulnerable to

successful constitutional challenges (138).

The following provides a brief discussion of

the Federal and State constitutional harriers

to tort reform.

Federal Constitutional Review

Medical malpractice tort reform legislation is typically challenged under the equal

protection and due process clauses of the

Fifth amendment and the right to jury trial

guaranteed by the Seventh amendment of

the U.S. Constitution. Very few Federal courts

have overturned malpractice tort reform and

it is highly unlikely the Supreme Court would

overturn federal malpractice tort reform because the lowest level of scrutiny is applied in

reviewing the constitutionality of tort reform

statutes ( 1 38).

The due process and equal protection

clauses act to protect individuals and groups

of individuals from being unfairly singled out

and discriminated against by a legislative

action. Analysis of economic legislation, such

as tort reform, under the due process clause

only examines whether the legislature has

been arbitrary or irrational in achieving its

legislative purpose (Duke Power Company v.

Carolina Environmental Study Group, Inc.

438 U.S. 59 ( 1978)). The equal protection

clause requires that a law apply equally to all

persons within a class and that differing treatment be based on differences that have a

reasonable tendency to further the objectives

of the statute. Malpractice tort reforms are

challenged under equal protection because

they treat people injured by medical

malpractice differently than people injured

by other tortious conduct: they single out

certain plaintiffs in medical malpractice and

limit their damages (e. g., caps on damages), or defendants in other tort actions are

treated differently than defendants in medical malpractice (105).

The determinative factor in constitutional

review of a statute is the level of scrutiny applied by the court. When evaluating tort

reform under the due process clause the

Supreme Court applies the lowest level of

scrutiny -- the “rational basis test” -- which

only requires that the statute have a rational

relationship to a legitimate legislative objective. Under this standard, a reform will be

held constitutional provided the legislature

had a reasonable basis for passing the statute,

even if in retrospect their assumptions about

the effect of the reform prove to be incorrect.

The court does not judge whether the statute

was “wise or desirable, ” and “misguided

laws” can also be held constitutional (James

v. Strange, 407 U.S. 128 (1972)). For example, if a tort reform is passed because the

legislature believes it is necessary to lower

health care costs or avoid an insurance crisis,

the reform will be upheld if it is at least

debatable that such a crisis could exist and

that the reform could help abate it (138).

The Supreme Court also uses minimal

scrutiny in examining tort reform under the

1 This low level of equal protection clause.

scrutiny almost guarantees that a reform will

be held constitutional. Again, the statute will

not declared unconstitutional unless “the

classification rests on grounds wholly irrelevant

to the achievement of the State’s objective”

(McGowan V. Mary land, 366 U.S. 420 (1%1)).

The court will uphold the statute even though

the legislative determination may be disputed:

debated or even opposed by strong contrary

arguments (Vance v. Bradley, 440 U.S. 93

(1979)).

-

9 9 -
. . .

100- Impact of Legal Reforms on Medical Malpractice Costs

The Seventh amendment guarantees a

person the right to jury trial for all suits in

which the amount of the controversy exceeds $20 and the legal claim is of a type

that could have been tried at common law,

which includes certain tort actions (138).

Pretrial screening panels are one reform

that is often challenged under the Seventh

amendment. The Federal courts have uniformly rejected these challenges, holding that

delays produced by administrative remedies

that must be completed before proceeding to

trial do not deprive a plaintiff of their right to

trial (138). In addition, the admissibility of

the panel’s decision does not deprive the

plaintiff of the right to jury trial since the

decision is not dispositive, but merely

additional evidence (138).

State Constitutional Review

Most State constitutions contain equal

protection and due process clauses that are

either identical or very similar to the those

found in the U.S. Constitution. In addition,

State constitutions guarantee a right to trial in

the State court (138). However, when

interpreting their own constitutions, the State

courts are not bound by the Federal standards

for review (138). It is for this reason that

tort reforms have been held unconstitutional

under the equal protection and due process

clauses of State constitutions. In most cases,

the statute is overturned on equal protection

grounds because the State court uses a stricter

scrutiny standard than the Federal courts.

A number of State courts have applied a

heightened scrutiny and overturned malpractice reform.2 As one court explained,

State courts are generally much less deferential than Federal courts to economic

legislation that singles out one group of

individuals or rights, especially when that

legislation infringes on the right to trial

(Condemarin v. University Hospital. University

of Utah 775 P.2d 348 (Utah 1989)). A number

of courts that have applied an “intermediate

level of scrutiny”3 to malpractice reform

have found the provisions unconstitutional

on equal protection and in a few cases on

due process grounds.4 At least two courts

have even applied the strictest level of

scrutiny, holding that the right to a judicial

remedy for medical malpractice is a fundamental right.5

State courts have overturned reforms

because under intermediate scrutiny the

court evaluates the assumptions made by the

legislature in passing the legislation. A

number of courts have found these assumptions lacking. For example, in Arenson v.

Olson the court struck down a cap on damages that was intended to reduce malpractice insurance premiums, noting evidence

from another State that malpractice insurance rates were not related to claims involving large damages. The court concluded

that either the legislature was misinformed

or the situation had changed dramatically

(Arenson v. Olson. 270 N.W.2d 125 (N.D.

1978)). In Kenyon v. Hammer, the court found

no evidence supporting the legislature’s

assertion that elimination of the discovery

rule for the statute of limitations was necessary in order to reduce either malpractice

premiums or the cost of medical care (Kenyon

v. Hammer, 688 P.2d 961 (Az. 1984)), In

Hoem v. State of Wyomin g, the court wrote

that, in reviewing malpractice tort reforms,

courts should take a more “skeptical attitude

toward the evidence presented by the

medical profession and the insurance industry

and toward the conclusion reached by the

State legislature” that a crisis exists (Hoem

v. State of Wyoming, the University of

Wyoming, 756 P.2d 780 (Wyo. 1988)).

Some reforms have been found to violate State constitutional provisions guaranteeing the right to trial or the State’s broader

guarantee of access to the courts. 6 In

addition, some State constitutions have

specific provisions guaranteeing rights to

tort plaintiffs. For example, State constitutions in Arizona, Pennsylvania, and Montana
Appendix B--Constitutional Challenges to Malpractice Reforms: Implications for Federal

Reform -101

specifically limit the legislature’s right to

restrict damages recoverable in tort actions

(138).

Not all challenges to medical malpractice reforms have been successful. Some

State courts have rejected arguments for

heightened scrutiny and have upheld malpractice reforms.7 Some of these more recent cases involve reforms that apply to all

torts, not just medical malpractice. These

“generic” reforms may be better able to

withstand a challenge on equal protection

grounds (14). Moreover, while cases

overturning caps on damages have received

significant attention, most reforms in the

States have survived, either by judicial decision upholding the reform or from lack of

a judicial challenge ( 14). Indeed, both

California and Indiana courts upheld very

comprehensive reform packages, both of

which included caps on damages.8 In addition, recent decisions indicate that some

State courts are less likely to subject tort reform legislation to heightened scrutiny (15).

Alternative Dispute Resolution, No-Fault,

and State Constitutions

While a number of States have been

willing to enact reforms that change the

rules that apply in civil trials, few States

have embraced broader procedural reforms

that would remove malpractice disputes

from the civil judicial system. This may be

due in part to the fact that it is difficult to

make alternative dispute resolution (ADR)

procedures binding and mandatory without

running afoul of constitutional protections

such as the right to trial, equal protection,

access to courts, and due process (47).

Nonjudicial schemes could be set up as alternatives to the tort system, analogous to

the workers’ compensation programs.

However, to pass constitutional muster, the

reform must provide a benefit that offsets

the plaintiff’s loss of the right to a judicial

proceeding (156). Several States have already begun to employ a “quid pro quo”

reasoning in evaluating tort reform under

the due process clause (138) (Fein v.

Permanence Medical Group, 474 U.S. 892

(1985) (White, dissent)).

To date. the only no-fault reforms that

have been implemented are the Virginia and

Florida birth-injury, no-fault programs. The

constitutionality of these statutes with respect

to nonparticipating physicians has been upheld

in both States; however, the constitutionality

of removing those cases from the judicial

process has not yet

challenged.9

Federal Malpractice

Constitutional

been specifically

Reform and State

Challenges

Tort reform initiated at the Federal

level could face a challenge under State

constitutions depending on how the Federal

government would choose to implement

such reforms. If Federal monies were tied

to the requirement that certain reforms be

implemented, challenges would almost certainly be brought in State courts and may be

brought in Federal courts as well.

10 A s

discussed above, tort reforms are likely to

withstand Federal challenge, but may not

withstand all State challenges. This implementation approach could give rise to the

awkward situation in which a State court

has declared a particular type of reform unconstitutional, thereby making it difficult

for the State to qualify for the federal

funds. This is a policy issue that would

need to be addressed if the federal government chose to encourage States to adopt

specific reforms. The alternative, passing

Federal medical malpractice reforms, may

be equally sensitive from a States’ rights

perspective.
102- Impact of Legal Reforms on Medical Malpractice Costs

Footnotes for Appendix B

IHjghcr levels of scrutiny are reserved for Statutes that discriminate against p~OplC on th~ basis of ra~~,

alienage, national origin, sex, and illegitimacy, or which impinge upon fundamental rights, such as

privacy, voting, or the right to interstate travel (117).

2At least one court overturned Caps on noneconomic damages using the 10WCS1 ICvCl of scrutiny. In

Morris v. Savoy the Ohio Supreme Court found no evidence demonstrating a rational connection

between limiting awards and reducing malpractice insurance rates (Morris v. Savoy (576 N.E.2d 765

(Ohio 1991)).

~Undcr intermediate scrutiny, the statute will be upheld if it is determined the State’s in[crcst is

“important” and the means adopted to serve that interest has a fair and substantial relationship to the

object of the legislation (Kenvon v. Hammer, 688 P.2d 961 (Ariz. 1984)). Strict scrutiny requires that

the statute serves a compelling State interest and is necessary to achieve the legislative objective

(Kenvon v, Hammer, 688 P.2d 961 (Ariz. 1984)). Very few statutes can withstand [his level of

scrutiny (138).

4Far]ev v. Englckcn, 740 p.2d 1058 (Km. 1987); Arenson V . O1son, 270 N.W.2d 125 (ND. 1~7’$);

BranniEan v. Usitalo 587 A.2d 1232 (N.H. 1991); Carson v. Maurer 424 A,2d 825 (N.H. 1980);

Condemarin v. University Hos~ital. University of Utah, 775 P.2d 348 (Utah 1989); .Joncs v. S[atc

Board of Medicine, 555 P.2d 399 (Idaho 1976) cert. denied 431 U.S. 914 (1977). The court in Jones

did not overrule the statute, but instead remanded the case with instructions to [hc court to scrutinize

the cap in light of the heightened standard of review. The court on remand found the limitation

unconstitutional (Jones v. State Board of Medicine, Nos. 55527 and 55586 (4th Dis. Idaho, Nov. 3.

1980) as cited in (105).

5White v. State, 661 p.2d 1272 (Mont. 1983) (applying “strict scrutiny” tO damage cap) ~~’eflltnlcd

Mecch v. Hillhaven West. Inc., 776 P.2d 488 (Mont. 1989) (held that strict scrutiny did not apply

when reviewing the constitutionality of a limit on damages in personal injury suits); Kcnvon v.

Hammer, 688 P.2d 961 (Ariz. 1984) (overturning statute of limitation).

6~See e.g., Smith v. Dept. of Insurance, 507 So.2d 108O (Fla. 1987) (overturning cap on damages); we

C X. rel. Cardinal Glennon Memorial Hosr.), for Children v. Gacrtncr, 583 S.W.2d 107 (Mo. 1979)

(overturning pretrial screening panel); Mattes v. Thompson, 421 A.2d 190 (Pa. 1980) (overturning

pretrial screening panel); Sofie v. Fibreboard Corp., 771 P.2d 711 (Wash. 1989) (overturning cap on

damages).

7State ex. rcl, Strvkowski v. Wilkie, 261 N.W.2d 434 (Wis. 1978) (upholding patient compensation fund>

including periodic payments for future damages); Fein v. Permanence Medical Group, 695 P.2d 665

(Cal. 1985) (upholding California’s package of tort reforms); Johnson v. Sain[ Vincent Hospital Inc.,

404 N.E.2d 585 (Ind. 1980) (upholding $500,000 total cap on damages); Samscl v. Wheeler

Transportation Serv.. Inc., 789 P.2d 541 (Kan. 1990) (upholding $250,000 cap on noneconomic

damages for all personal injuries); EtheridRe v. Medical Center Hosp., 376 S.E.2d 525 (Vir. 1989)

(cap on total damages constitutional); Murphy v. Edmonds, 601 A.2d 102 (Ct. App. Md. 1992) (cap

on noneconomic damages of $350,000 constitutional); Adams v. The Children’s Hosr)ital, 832 S.W.2d

898 (Me. 1992) cert. denied 113 S. Ct. 511 (1992) (upholding $430,000 cap on noneconomic damages,

periodic payment provision and modified joint and several liability); Murphv v. Edmonds 601 A.2d

102 (Md. 1992) (upholding $350,000 cap on noneconomic damages applicable to all persona] injury

cases including malpractice); Scholz v. Metrot)olitan Patholo~ists. P. C,, 851 P.2d 901 (Colo. 1993)

re}z’g. denied Scholz v. Metropolitan Pathologists, P. C., 1993 Colo. Lcxis 502 (Co]o. June 7, 1993)

(upholding $1 million cap on damages in medical malpractice of which no more than $250,000” could

be attributable to pain and suffering); Prender~ast v. Nelson, 256 N.W,2d 657 (Ncb. 1977).
Appendix B--Constitutional Challenges to Malpractice Reforms:Implications for Federal

Reform -103

8Fein “e permanence Medical Group, 696 P.2d 665 (Cal. 1985) appeal dismissed 474 us, 892 (lg~$;

Johnson v. St, Vincent Host)ital. Inc. 404 N.E,2d 585 (Ind. 1980).

91n reviewing the constitutionality of the statute, the Virginia Supreme Court applied the least stringent

review standard (King v. Virginia Birth-Related Neurological Iniurv Compensation Program, 410

S.E.2d 656 (Va. 1991)). Therefore, the statute is likely to withstand a challenge by plaintiffs as WCII.

The review in the Florida court was somewhat more limited, focusing more specifically on the

financing mechanism provision (James F. Cov v, Florida Birth-Related Neurological lniury

ComDcnsation Plan, 595 So.2d 943 (Fla. 1992) cert. denied McGibonv v. Florida Birth-Related

Neurological Iniury Comr)ensation Plan, 113 S. Ct. 194 (1992)). Currently several cases brought by

plaintiffs challenging the constitutionality of the Florida program arc pending in State courts (37).

IOThe Supreme court has held that congress may attach conditions to the receipt of Federal funds

provided that the conditions are intended to serve general public purposes, arc unambiguous, arc

related to a Federal interest in a national project or program, and are not barred by other Federal

constitutional provisions (South Dakota v. Dole, 484 U.S. 203 (1987)).
Appendix C

Results of Six Empirical Studies on State Medical Malpractice Reform

This appendix presents more detailed

results of the six empirical studies of the

impact of State tort reforms on the malpractice cost indicators reviewed in

chapter 3. Appendix tables C-1 through

C-3 summarize the studies’ results for each

malpractice cost indicator, respectively:

claim frequency, payment per paid claim,

and insurance premiums or losses. In each

table (i. e., for each indicator), the results

for each study that used that indicator

(referenced by the first author’s last name)

are listed for each of the State tort reform

measures that the study employed. (Table

3-3 in the text summarizes the contents of

these three tables. )

Because the nature of the data used for

a given indicator differed greatly among

the studies (see the ch. 3 subsection on

“Malpractice Cost Indicators”), tables C-1

through C-3 depict only the direction of

the studies results, and not their specific

quantitative values. A minus sign (–) means

that the results were in the expected

direct ion--i .e., presence of that tort reform

reduced the malpractice cost indicator.

A plus sign (+) means that results were in

the unexpected direction--i. e., presence of

that tort reform increased the malpractice

cost indicator. A dot (0) means that the

study did not examine the impact of that tort

reform on that malpractice cost indicator.

To gauge the relative importance of the

findings, the tables also indicate the level

of statistical significance reported for each

result: The greater the number of asterisks

shown beside a given plus or minus sign,

the higher was the level of statistical significance reported for the result. To indicate overall trends in the direction of the

results, plus and minus signs are shown for

every reported coefficient, regardless of

how large or small they were in absolute

magnitude. However, we must emphasize

that results that were not statistically significant at all (i. e.. with no asterisks beside

them) should be interpreted as being essentially zero. Unlike in text table 3-3, no

zeros appear in appendix tables C-1

through C-3: Every result has a plus or

minus sign. and a dot means “ not examined

in the study. ”

-105-
106- Impact of Legal Reforms on Medical Malpractice Costs

Table C-l--Results of Empirical Studies on the Impact of State Tort Reforms

on Medical Malpractice Claim Frequencya

Studyb

Danzon

Reform Adams OLS TSLS Zuckerman

Restrict the statute of limitations:

a. Use date of event, not discovery

b. Shorten basic statute of limitations

for medical malpractice

c. Shorten statute of limitations for minors

d. Shorten extension of statute of

limitations from date of discovery

Establish pretrial screening panels:

a. Mandatory

b. Results admissible in trial

c. Any type

Limit attorney fees

Modify the standard of care:

a. Codify the standard of care

b. Do not adopt the “expanded locality rule”

c. Establish qualifications for expert

witnesses

Require or allow awards to be reduced

by amount of collateral payments:

a. Require

b. Allow

c. Either require or allow

Impose caps on damage awards:

a. Total damages

b. Noneconomic damages only

c. Punitive damages only

d. Noneconomic or punitive damages

e. Any type

Require or allow periodic payments:

a. Require

b. Allow

c. Either require or allow

— ●

☞ ☛☛ ☞

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

●

☞

●

☞

☞

●

●

●

☞ ☛☛

●

☞ ☛☛

●

●

●

●

●

●

●

●

● ●

 ☛ ☛ ☞ ☛

●

●

●

●

●

●

●

☛

●

●

●

●

●

●

●

●

—

+

●

●

☞

☞

●

●

●

☞

●

☞

●

●

●

●

●

●
Appendix C --Results of Six Empirical Studies on State Medical Malpractice Reform -107

Table C-l--Results of Empirical Studies on the Impact of State Tort Reforms

on Medical Malpractice Claim Frequencya (Continued)

Study b

Danzon

Reform Adams OLS TSLS Zuckerman

Restrict the joint and several liability doctrine ● ● ● ●

Allow voluntary, binding arbitration:

a. Codify the option of arbitration for

medical malpractice ● +

** +** ●

b. Allow pre-injury agreements to arbitrate ● ● ● —

Restrict the use of res ipsa loquitur — ● ● ●

Restrict the use of ad damnum clauses ● ● ● ●

Limit the doctrine of informed consent — *** ● ● ●

Allow costs awardable in frivolous suits ● ● ● —

aKev to svmbols:

– Result in the expected direction (reducing malpractice claim frequency)

+ Result in the unexpected direction (increasing malpractice claim frequency)

● Not examined in the studies reviewed here

* significant at the .10 level

** Significant at the .05 level

*** significant at the .01 level

b$tudv measures:

Adams: Number of malpractice claims for 1976-1981 reported by physicians in a 1982 survey,

Danzon (OLS): Number of claims filed per insured physician, reported by insurance companies for 1975-1984, claimsmade policies only, ordinary least-squares regression.

Danzon (TSLS): Number of claims filed per insured physician, reported by insurance companies for 1975-1984, claimsmade policies only, two-stage least-squares regression.

Zuckerman: Number of claims filed per insured physician, reported by insurance companies for 1975-1986, claimsmade policies only.

SOURCES: E. K. Adams, and S. Zuckerman, “Variation in the Growth and Incidence of Medical Malpractice Claims,(

’

Journal of Health Politics, Policy and Law 9(3):475-488, Fall 1984; P.M. Danzon, “The Frequency and

Severity of Medical Malpractice Claims: New Evidence,(

’ Law and Contemporary Problems 49(2):57-84,

Spring 1986; S. Zuckerman, RR. Bovbjerg, and F. Sloan, “Effects of Tort Reforms and Other Factors on

Medical Malpractice Insurance Premiums, ” Inquiry 27(2): 167-182, Summer 1990.
108- Impact of Legal Reforms on Medical Malpractice Costs

Table C-2--Results of Empirical Studies on the Impact of State Tort Reforms on Medical

Malpractice Payment Per Paid Claima

Study b

Sloan

Danzon Prob. of Amount of Amount

Reform OLS TSLS payment payment + LAE Zuckerman

Restrict the statute of limitations:

a. Use date of event, not discovery

b

c

d

Shorten basic statute of limitations

for medical malpractice

Shorten statute of limitations

for minors

Shorten extension of statute of

limitations from date of discovery

Establish pretrial screening panels:

a. Mandatory

b. Results admissible in trial

c. Any type

Limit attorney fees

Modify the standard of care:

a. Codify the standard of care

b. Do not adopt the “expanded

locality rule”

c. Establish qualifications for expert

witnesses

Require or allow awards to be reduced

by amount of collateral payments:

a. Require

b. Allow

c. Either require or allow

Impose caps on damage awards:

a. Total damages

b. Noneconomic damages only

c. Punitive damages only

d. Noneconomic or punitive damages

e. Any type

Require or allow periodic payments:

a. Require

b. Allow

c. Either require or allow

●

●

●

●

●

●

●

●

 ☛☛

●

☛

●

●

●

●

 ☛ ☛

●

●

●

●

●

●

●

☞

●

☞

●

●

●

 ☛☛

●

☛

●

●

●

●

 ☛ ☛

●

●

●

●

●

—

+

●

●

✎

—

+

●

—

+

●

●

☞

●

—

+

**

–*

—

+

●

●

☞

●

☞

●

—

+*

—

—

+

●

●

☞

●

☞

☞

+ ***

●

●

●

— –* –*

+ —

● ● ●

— ** — *** —

—** –* –*

+ — ●

● ● ●

● ● ●

— — ●

☞ ●

● ● ●
Appendix C--Results of Six Empirical Studies On State Medical Malpractice Reform -109

Table C-2--Results of Empirical Studies on the Impact of State Tort Reforms on Medical

Malpractice Payment Per Paid Claima (Continued)

Study b

Sloan

Danzon Prob. of Amount of Amount

Reform OLS TSLS payment payment + LAE Zuckerman

Restrict the joint and several liability

doctrine

Allow voluntary, binding arbitration:

a. Codify the option of arbitration for

medical malpractice

b. Allow pre-injury agreements

to arbitrate

Restrict the use of res ipsa loquitur

Restrict the use of ad damnum clauses

Limit the doctrine of informed consent

Allow costs awardable in frivolous suits

●

 ☛ ☛

●

●

●

●

●

● ● ● ● ●

— ●** ● ● ●

●

● ☞ ●

● ☞ ☞ ●

● ☞ ●

● ☞

 ☛ ☛  ☛ ☛ ☞

aKey to symbols:

– Result in the expected direction (reducing payment per paid claim)

+ Result in the unexpected direction (increasing payment per paid claim)

● Not examined in the studies reviewed here

* Significant at the ,10 level

** Significant at the ,05 level

*** significant at the .01 level

bStudy measures:

Danzon (OLS): Average payment amount per paid claim for all claims (i.e., under both claims-made and occurrence

policies), 1975-1984, ordinary least-squares regression

Danzon (TSLS): Average payment amount per paid claim for all claims (i.e., under both claims-made and occurrence

policies), 1975-1984, two-stage least-squares regression

Sloan: Probability that the claim would result in payment, 1975-1978 and 1984

Amount of indemnity payment for the claim, 1975-1978 and 1984

Amount of indemnity payment plus “loss-associated expense” (mainly defense attorneys’ fees) for the claim, 1975-

1978 and 1984

Zuckerman: Average payment amount per paid claim for all claims (i. e., under both claims-made and occurrence

policies), 1975-1986

SOURCES: P.M. Danzon, “The Frequency and Severity of Medical Malpractice Claims, New Evidence, ” Law and

Contemporary Problems 49(2):57-84, Spring 1986; F.A, Sloan, P.M. Mergenhagen, and R.R. Bovbjerg,

“Effects of Tort Reforms on the Value of Closed Medical Malpractice Claims: A Microanalysis,” Journal of

Health Politics, PolicV and Law 14(4):663-689,Winter 1989; S, Zuckerman, R.R. Bovbjerg, and F, Sloan,

“Effects of Tort Reforms and Other Factors on Medical Malpractice Insurance Premiums,” Inquiry 27(2): 167-

182, Summer 1990,
110- Impact of Legal Reforms on Medical Malpractice Costs

Table C-3--Results of Empirical Studies on the Impact of State Tort Reforms on Medical

Malpractice Insurance Premiums or Lossesa

Studyb

Zuckerman (premiums)

GeneraI GeneraI Blackmon Barker

Reform practice surgery Ob/Gyn Premiums Losses Premiums

Restrict the statute of limitations:

a.

b.

c.

d.

Use date of event, not discovery

Shorten basic statute of limitations

for medical malpractice

Shorten statute of limitations

for minors

Shorten extension of statute of

limitations from date of discovery

Establish pretrial screening panels:

a. Mandatory

b. Results admissible in trial

c. Any type

Limit attorney fees

Modify the standard of care:

a. Codify the standard of care

b. Do not adopt the “expanded

locality rule”

c. Establish qualifications for expert

witnesses

Require or allow awards to be reduced

by amount of collateral payments:

a. Require

b. Allow

c. Either require or allow

Impose caps on damage awards:

a. Total damages

b. Noneconomic damages only

c. Punitive damages only

d. Noneconomic or punitive damages

e. Any type

Require or allow periodic payments:

a. Require

b. Allow

c. Either require or allow

●

✍ ☛☛☛

☞

 ☛☛☛

●

☛

☞

 ☛☛☛

● ●

● ●

—

●

●

●

—

+

●

— ***

+

●

●

●

●

●

●

●

+

+

●

— ***

+

●

●

●

●

●

●

● ● ● ●

 ☛ ☛ ☞ ☞

+ ● ● ●

 ☛☛☛ ● ● ●

●

●

☛

—

●

●

●

—

+

●

●

●

●

—

●

●

●

●

●

☞

● ●

● ●

● ●

— ●

●

● ●

● ●

● ●

● ●

☞

— *** ● ● ●

☞ ● ● ●

● ● ● ●

●

 ☛☛☛  ☛☛☛ ●

● ● ●

 ☛☛☛

● ● ● ●

● ● ● ●

● ☞ ●
Appendix C --Results of Six Empirical Studies on State Medical Malpractice Reform -111

Table C-3--Results of Empirical Studies on the Impact of State Tort Reforms on Medical

Malpractice Insurance Premiums or Lossesa (Continued)

Study b

Zuckerman (premiums)

General General Blackmon Barker

Reform practice surgery Ob/Gyn Premiums Losses Premiums

Restrict the joint and several

liability doctrine ● o ● –* — ●

Allow voluntary, binding arbitration:

a. Codify the option of arbitration for

medical malpractice ● ●

b. Allow pre-injury agreements

to arbitrate — —

Restrict the use of res ipsa loquitur ● ●

Restrict the use of ad damnum

clauses

●

●

●

●

●

● ☞

● ●

● ☞

● ●

Limit the doctrine of informed

consent ● ● ● ● ● ●

Allow costs awardable in frivolous

suits — + ● ● ●

aKey to symbols:

- Result in the expected direction (reducing malpractice premiums or losses)

+ Result in the unexpected direction (increasing malpractice premiums or losses)

. Not examined in the studies reviewed here

* Significant at the ,1O level

** Significant at the .05 level

*** Significant at the ,01 level

bStudy measures,

Zuckerman: Malpractice insurance premiums for general practice, 1975-1986

Malpractice insurance premiums for general surgery, 1975-1986

Malpractice insurance premiums for obstetrics/gynecology, 1975-1986

Blackmon: Change in malpractice insurance premiums between 1985 and 1988

Change in malpractice insurers’ losses from 1985 to 1988

Barker Mean loss ratio, malpractice insurance industry total, 1977-1986

SOURCES: D.K. Barker, “The Effects of Tort Reform on Medical Malpractice Insurance Markets: An Empirical Analysis, ”

Journal of Health Politics, PolicV and Law, 17(1):143-161, Spring 1992; G, Blackmon, and R Zeckhauser,

“State Tort Reform Legislation: Assessing Our Control of Risks,” in Tort Law and the Public Interest, Peter H,

Schuck (cd. ) (New York: W.W. Norton & Co., 1991); F.A. Sloan, P.M. Mergenhageni and RR, Bovbjerg,

“Effects of Tort Reforms on the Value of Closed Medical Malpractice Claims: A Microanalysis, ” Journal of

Health Politics, Policy and Law 14(4):663-689, Winter 1989; S. Zuckerman, RR, Bovbjerg, and F. Sloan,

“Effects of Tort Reforms and Other Factors on Medical Malpractice Insurance Premiums, ” Inquiry 27(2): 167-

182, Summer 1990,
Appendix D

Acknowledgments

OTA would like to thank the following individuals for their assistance:

Laura-Mae Baldwin, M. D.. M.P.H.

Assistant Professor

University of Washington

Department of Family Medicine

Seattle, WA

Walter Beckham, Jr., J. D.

Consultant

Miami, FL

Bill Bodiford

Actuarial Analyst

Bureau of Property and Casualty Rates

and Reserve Analysis

Division of Insurance Services

Florida Dept. of Insurance

Tallahassee. FL

Elizabeth Brandt, J.D.

Chief Council and Deputy Director

California Department of Health Services

Sacramento, CA

Milton I. Cooper

Medical Legal Section

Regional Legal Department

Kaiser Permanente Medical

Oakland, CA

Philip H. Corboy, J.D.

Corboy & Demetrio

Chicago, IL

Lynn B. Dickinson

Executive Director

Birth-Related Neurological

Care Program

Injury

Compensation Association

Florida Department of Insurance

Tallahassee, FL

Polly Ehrenhaft

Consultant

Lake Oswego, OR

Lillian Gaskin, J. D.

Senior Legislative Counsel

American Bar Association

Washington, DC

Peter Glassman, M.D.

Physician Researcher

RAND

Santa Monica, CA

Jona Goldshmidt, J. D., Ph.D.

American Judicature Society

Chicago, IL

Ralph W. Hale. M.D.

Executive Director

American College of Obstetricians

and Gynecologists

Washington, DC

Mark Hall. J.D,

Professor of Law and Public Health

Wake Forest School of Law

Bowman Gray School of Medicine

Winston Salem, NC

Tricia Hunter. R.N.

Special Assistant

Medical Malpractice

Office of Statewide Health Planning

and Development

Sacramento, CA

Peter Jacobson, J. D., M.P.H.

Senior Behavioral Scientist

RAND

Santa Monica. CA

Robert Lembo

Director, State Relations

Association of Trial Lawyers of America

Washington. DC

Russell Localio. J. D.. M.P.H.

Research Associate

Center for Biostatistics and Epidemiology

Penn State University School of Medicine

Hershey, PA

Harold Luft, Ph.D.

Professor of Health Economics

Institute for Health Policy Studies

University of California, San Francisco

San Francisco, CA

-113-
114- Impact of Legal Reforms on Medical Malpractice Costs

Tom Metzloff, J.D.

Professor of Law

Duke University School of Law

Durham, NC

Don Harper Mills. M. D., J.D.

Consultant

Long Beach, CA

C. M. Kinloch Nelson, M.D.

The Urology Center

Richmond, VA

Micheal A. Nocero, Jr., M.D.

Chairman, Board of Governors

American College of Cardiology

Orlando, FL

Elinor J. Pyles

Executive Director

Virginia Birth Related Neurological

Compensation Fund

Richmond, Virginia

John S. Schroeder, M.D.

Professor of Medicine

Division of Cardiovascular Medicine

Stanford University School of Medicine

Stanford, CA

David Shapiro, M. D., J.D.

Senior Analyst

Physician Payment Review Commission

Washington, DC

Janice M. Sigler, J.D.

Assistant Attorney General

Office of the Attorney General

Richmond, VA

Stephanie Spernak, J.D.

Senior Research Scientist

Center for Health Policy Research

George Washington University

Washington, DC

Jeremy Sugarman, M.D.

Assistant Professor

Division of General Internal Medicine

Duke University Medical Center

Durham, NC

Mark I. Taragin. M. D.. M.P.H.

Assistant Professor

Division of General Internal Medicine

Robert Wood Johnson Medical School

New Brunswick, NJ

Sandy Ulsaker, J.D.

Government Affairs Liaison

St. Paul Fire and Marine Insurance Company

St. Paul, MN

Walter Wadlington, J. D.

Professor of Law

University of Virginia

Charlottesville, VA

Paul Weiler, J.D.

Professor of Law

Harvard Law School

Cambridge, MA

Steve Zuckerman. Ph.D.

Senior Research Associate

Urban Institute

Washington, DC

Lois Snyder, J.D.

Manager

Health and Medical/Legal Policy Development

American College of Physicians

Philadelphia, PA
— —

Appendix D--Acknowledgments -115

OTA would like to express its appreciation to the following Attorneys General and their staff:

James H. Evans, J.D.

Attorney General

Office of the Attorney General

Montgomery, AL

Lynda K. Oswald, J.D.

Assistant Attorney General

Office of the Attorney General

Montgomery, AL

Charles E. Cole, J.D,

Attorney General

Department of Law

Juneau. AK

Stephanie E. Joannides, J.D.

Assistant Attorney General

Department of Law

Juneau, AK

Winston Bryant, J. D.

Attorney General

Office of the Attorney General

Little Rock, AR

Dinah M. Dale, J.D.

Assistant Attorney General

Office of the Attorney General

Little Rock. AR

Grant Woods, J.D.

Attorney General

Office of the Attorney General

Phoenix, AZ

Mark F. Aceto, J.D.

Assistant Attorney General

Office of the Attorney General

Phoenix, AZ

Daniel E. Lungren, J.D.

Attorney General

Department of Justice

Sacramento, CA

Thomas A. Blake, J.D.

Deputy Attorney General

Department of Justice

Sacramento CA

Gale A. Norton, J.D.

Attorney General

Office of the Attorney General

Denver, CO

William Higgins. J.D.

Assistant Attorney General

Office of the Attorney General

Denver, CO

Richard Blumenthal, J.D.

Attorney General

Office of the Attorney General

Hartford, CT

Jane D. Cornerford, J.D.

Assistant Attorney General

Office of the Attorney General

Hartford. CT

Michael J. Bowers. J.D.

State of Georgia

Department of Law

Atlanta, GA

Julia B. Anderson, J.D.

Assistant Attorney General

Department of Law

Atlanta. GA

Bonnie J. Campbell, J.D.

Attorney General

Department of Justice

Des Moines, IA

Craig Kelinson. J.D.

Special Assistant Attorney General

Department of Justice

Des Moines, IA

Larry EchoHawk. J.D.

Attorney General

Office of the Attorney General

Boise, ID

Donald L. Deleski

Executive Director

Idaho State Board of Medicine

Office of the Attorney General

Boise. ID
116- Impact of Legal Reforms on Medical Malpractice Costs

Roland W. Burris, J.D.

Attorney General

Office of the Attorney General

Springfield, IL

Karen J. Steele, J.D.

Assistant Attorney General

Office of the Attorney General

Springfield. IL

Pam Carter, J.D.

Attorney General

Office of the Attorney General

Indianapolis, IN

Daniel B. Dovenbarger, J.D.

Chief Counsel

Office of the Attorney General

Indianapolis, IN

Richard P. Ieyoub. J.D.

Attorney General

Department of Justice

Baton Rouge. LA

Athena B. Piedrahita, J.D.

Assistant Attorney General

Department of Justice

Baton Rouge, LA

Michael E. Carpenter, J.D.

Attorney General

Department of the Attorney General

Augusta. ME

Thomas D. Warren, J.D,

Deputy Attorney General

Department of the Attorney General

Augusta. ME

Margaret J. Reinsch

Legislative Analyst

Office of Policy and Legal Analysis

State House Station 13

Augusta, ME

J. Joseph Curran, Jr., J.D.

Attorney General

Offices of the Attorney General

Baltimore, MD 21202

C.J. Messerschmidt, J.D.

Assistant Attorney General

Offices of the Attorney General

Baltimore MD 21202

Scott Harshbarger, J.D.

Attorney General

Office of the Attorney General

Boston, MA

Stuart T. Rossman, J.D.

Assistant Attorney General

Office of the Attorney General

Boston, MA

Frank J. Kelley, J.D,

Attorney General

Department of the Attorney General

Lansing, MI

Hubert H. Humphrey 111, J.D.

Attorney General

Office of the Attorney General

St. Paul, MN

Jeremiah W. (Jay) Nixon. J.D.

Attorney General

Office of the Attorney General

Jefferson City, MO

Elizabeth A. Hess, J.D,

Assistant Attorney General

Office of the Attorney General

Jefferson City, MO

Joseph P. Mazurek, J.D.

Attorney General

Department of Justice

Helena, MT

Michael Easley. J.D.

Attorney General

Department of Justice

Raleigh, NC

E. H. Bunting. Jr., J.D.

Special Deputy Attorney General

Department of Justice

Raleigh, NC
Heidi Heitkamp, J.D.

Attorney General

Office of the Attorney General

Bismarck, ND

Don Stenberg, J.D.

Attorney General

Office of the Attorney General

Lincoln. NE

Sam Grimminger, J.D.

Deputy Attorney General

Office of the Attorney General

Lincoln, NE

Jeffrey R. Howard, J.D.

Attorney General

Department of Justice

Concord, NH

Douglas N. Jones, J.D.

Assistant Attorney General

Department of Justice

Concord, NH

Frankie Sue Del Papa. J.D.

Attorney General

Office of the Attorney General

Carson City, NV

James C. Smith, J.D.

Deputy Attorney General

Office of the Attorney General

Carson City, NV

Robert Abrams, J.D.

Attorney General

Department of Law

Albany, NY

Donald P. Berens, Jr., J.D,

Assistant Attorney General

Department of Law

Albany, NY

Lee Fisher, J.D.

Attorney General

Office of the Attorney General

Columbus, OH

Simon B. Karas, J.D.

Deputy Chief Counsel

Office of the Attorney General

Columbus. OH

Susan B. Loving, J.D.

Attorney General

Office of the Attorney General

Oklahoma City. OK

Guy L. Hurst, J.D.

Assistant Attorney General

Office of the Attorney General

Oklahoma City. OK

Theodore R. Kulongoski, J.D.

Attorney General

Department of Justice

Salem, OR

Rodney K. Norton, J.D.

Assistant Attorney General

Department of Justice

Salem, OR

Ernest D. Preate, Jr., J.D.

Attorney General

Office of the Attorney General

Harrisburg, PA

Jessie L. Smith, J.D.

Chief Deputy Attorney General

Office of the Attorney General

Harrisburg, PA

Jeffrey B. Pine, J.D.

Attorney General

Department of the Attorney General

Providence, RI

Lisa Dinerman, J. D.

Special Assistant Attorney General

Department of the Attorney General

Providence, RI

T. Travis Medlock, J.D.

Attorney General

Office of the Attorney General

Columbia. SC
118- Impact of Legal Reforms on Medical Malpractice Costs

Strom T. Johnston

Manager

Professional Liability Department

South Carolina Insurance Reserve Fund

Columbia, SC

Mark Barnett, J.D.

Attorney General

Office of the Attorney General

Pierre, SD

James S. Schultz, J.D.

Legal Counsel

Division of Administrative Services

Department of Health

Pierre, SD

Charles W. Burson, J.D.

Attorney General

Office of the Attorney General

Nashville, TN

Eleonor Owen Kerr, J.D.

Assistant Attorney General

Office of the Attorney General

Nashville. TN

Dan Morales, J.D.

Attorney General

Office of Attorney General

Austin. TX

Nelly R. Herrera, J.D.

Assistant Attorney General

Tort Litigation Division

Office of the Attorney General

Austin, TX

Jan Graham, J.D.

Attorney General

Office of the Attorney General

Salt Lake City, UT

James R. Soper, J.D.

Assistant Attorney General

Office of the Attorney General

Salt Lake City, UT

Stephen D. Rosenthal, J.D.

Attorney General

Office of the Attorney General

Richmond, VA

Jane A. Perkins, J.D.

Legal Assistant

Office of the Attorney General

Richmond, VA

Jeffrey L. Amestoy, J.D.

Attorney General

Office of the Attorney General

Montpelier, VT

Geoffrey A. Yudien, J.D.

Assistant Attorney General

Office of the Attorney General

Montpelier, VT

Christine Gregoire, J.D.

Attorney General

Oft-ice of the Attorney General

Olympia, WA

Michael E. Tardif, J,D.

Division Chief

Tort Claims Division

Office of the Attorney General

Olympia, WA

James E. Doyle, J.D.

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Department of Justice

Madison, WI

David T. Flanagan, J.D.

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Madison, WI

Joseph B. Meyer, J.D.

Attorney General

Office of the Attorney General

Cheyenne, WY

John Rennison, J.D.

Assistant Attorney General

Office of the Attorney General

Cheyenne, WY
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