TO: All Presidential Candidates
FROM: David Kendall
DATE: January 1, 2008
SUBJECT: Health Care Costs and Malpractice Reform
To win the presidency in November, you must master the issue of rising health care costs. No domestic political issue is more important to the electorate, as workers see their health benefits erode or disappear and CEOs increasingly fear the competitive implications of rising costs. Just sounding sympathetic is not enough: You need a powerful and practical idea that will make a real difference.
The reasons for rising health care costs are many, and most elude simple political solutions. But one significant source of rising costs can be identified and tamed: the dysfunctional way we deal with medical malpractice. You should propose a dramatic reform to replace the current malpractice legal system with specialized health courts. These specialized courts would be administrative in design, similar to other long-standing, effective alternatives to traditional courts, such as the procedures used in workers’ compensation cases. This reform would win the support of virtually all medical professionals, and once the doctors are on your side, your broader health care reform plan will have the credibility it needs to gain broad public support. This memo describes the current mess, and proposes a solution for it.
The Current Mess
Headline-grabbing, multimillion-dollar jury awards depict injured patients as though they were lottery winners. It’s just not so: Far more often than not, patients are twice victimized, first by the medical system that caused their injury and then by a legal system that turns the pursuit of justice into a lengthy and often futile ordeal. The ordeal would be worth it for many if they could have confidence that their patience and perseverance helped others, but there is no evidence that they do.
Here are the five key facts which show that the malpractice system as it exists today not only fails to achieve the basic goals of a tort system—just compensation and effective deterrence—but also contributes to both rising health care costs and poor quality care.
First, injured patients rarely seek compensation. Only about 2 percent of patients injured by substandard medical care file a malpractice claim. Why so few? Some patients are satisfied if a doctor openly discusses a problem with them. In other words, they take “sorry” for an answer. Fearing lawsuits, however, most doctors do not reveal mistakes to their patients, leading many patients to assume that their injury is just a case of bad luck. If patients nevertheless suspect professional wrongdoing, they find that no lawyer will take their case unless their injury is severe enough to cover the high legal costs. In effect, it is impossible to use the present system for any but major cases of malpractice.
If injured patients do find a willing lawyer, a second ordeal then begins: They must confront their doctor and spend countless hours in acrimonious legal proceedings. Little wonder that patients wait an average of a year and a half after an injury before their lawyer files a claim, if they even get that far.
Second, most injured patients who do seek compensation receive none. Among the small number of injured patients who actually file a malpractice claim, only about a third will receive a payment through a settlement or a trial. The few injured patients lucky enough to get compensation must wait an average of three to five years from the time of their injury to the time of a judgment or settlement. Some cases take eight to ten years to resolve. The complexity of cases, the incentives and opportunities for lawyers on both sides to delay, and the nature of the appeals process all contribute to an achingly slow process that causes many victims simply to give up.
Third, the adjudication of medical malpractice cases lacks clear standards. The reason that such a small percentage of injured patients receive compensation is not greedy lawyers egging on patients to pursue frivolous suits that are soon abandoned, but the inherent difficulty of distinguishing between malpractice and unavoidable injury. Lawyers cannot help much by researching legal precedents because settlements are often sealed without anyone admitting guilt. Court cases could theoretically provide guidance for future cases, but judges rarely give juries instructions about legal standards of health care as they do in criminal cases, because very few are sufficiently trained to do so. It is therefore hard to prove malpractice.
Fourth, jury awards are inconsistent. Hard as it is to prove malpractice, juries behave unpredictably in those malpractice cases that do go to trial. Patients with the same injuries often receive vastly different awards, ranging from nothing to millions of dollars. Even among those who receive large jury awards, there is vast variation in what plaintiffs actually receive after accounting for their legal costs. Doctors are subjected to treatment as random as malpractice victims: Two doctors who take the same reasonable course of action can be treated very differently by the system depending on the talent of the lawyers, the temperament of the judge and the whims of a jury foreman. The current system simply cannot support reasonable and comparable decisions by any measure.
Fifth, the malpractice system is regressive. The administrative and front-end financial hurdles erected before injured patients hurt most those who have the least capacity to fight for compensation. These include the elderly, the previously handicapped and low-income patients—the very people most in need of compensation for injuries done to them.
Doctors believe rising malpractice insurance premiums are a big cost driver in health care. In fact, medical malpractice insurance premiums account for only 1 percent of the nation’s health care spending, and actual malpractice judgments, despite the headline-grabbing dollar amounts of some of them, make up an even smaller percentage: about half of a percent. In fact, problems with quality of care make up a much more significant cost driver. Medical errors, for example, account for a full 3 percent to the nation’s annual health bill. What contributes to the quality problem?
For one thing, the unpredictability of the current legal environment for malpractice cases makes medical professionals less forthcoming about areas for improvement. Only 5 percent of doctors and nurses say they are very comfortable talking about mistakes and near misses in the current legal environment. What doctors are comfortable doing in the current legal environment is practicing “defensive medicine”—the extra tests and procedures they feel compelled to order as a liability shield. The cost impact of defensive medicine is greater than the actual costs of hospital errors, malpractice insurance and judgments combined (estimates range from 4 to 9 percent of health care spending). This, not high insurance premiums, is the core problem that needs a solution.
A Better Way: Health Courts
There are many proposals for health care reform that are focused outside the medical justice system. All are well intentioned and some may be practical, but without legal reforms none will likely succeed in containing costs. Clearly, we need major reform, and we can achieve it in part by instituting a network of specialized health courts to replace the current medical justice system.1
Under health courts, malpractice cases would no longer be heard in civil courts. Instead, they would be handled in an administrative system overseen by the states. The system would be similar to the state-run workers’ compensation system. It would give more injured patients access to quicker and less expensive justice.
Under workers’ compensation systems, workers injured on the job submit a claim form through their employer to either an administrative law judge or a board, depending on the state. If the judge or board determines that the injury occurred on the job, a worker receives compensation according to a schedule of benefits that takes into account the severity of the injury, the degree of disability, and the worker’s age and pay. Injured workers cannot sue employers in a traditional court; workers’ compensation provides an alternative system of justice, one which the Supreme Court has upheld as constitutional and which the employee affirms as a condition of employment.
A health court system would be similar to the workers’ compensation system in two ways. First, there would be a schedule of benefits to compensate patients for medical injuries. Second, patients would receive quick and consistent damage awards.
In a health court system, an injured patient would submit a simple claim form, available through his or her health care provider, to a local health court review board. Review boards would investigate claims and determine if they are clear, uncontestable cases of malpractice. In such cases, they would simply order the injured patient’s health care provider to pay damages according to the schedule of benefits.
In making determinations about uncontestable cases of malpractice, review boards would refer to a catalogue of malpractice scenarios. Experts who have proposed alternative schemes to our current system of medical justice have already identified classes of such scenarios, known as avoidable classes of events, or accelerated compensation events (ACEs). For example, a patient who requires additional care because of bleeding after colon surgery would not need to prove malpractice, because such a symptom is a clear indication that the patient’s surgical team did something wrong.
In cases where a review board determines that a patient’s injury is clearly not malpractice, or is too minor to merit an award, the board would dismiss the case. Patients or providers could appeal to a health court for a limited review.
Where the circumstances of an injury are not cut and dried enough to qualify as an ACE, the review board would steer the case to the health court for trial. It is hard to guess what percentage of cases would fall into this category, but it would shrink as health courts create more ACEs. In health court trials, as in civil trials, lawyers would represent both parties. But health court trials would differ from civil trials in three respects: First, health courts would have specially qualified judges whose decisions would help shape clear legal standards for medical practice. Juries would determine facts, not standards. Second, the health courts, not plaintiffs and defendants, would hire expert witnesses and set fees for expert services. This by itself would significantly reduce malpractice costs. Finally, in cases where juries do find malpractice, juries would determine awards according to a schedule of benefits that would take into account both economic and non-economic factors, including health care expenses, legal expenses, income losses from disability, and pain and suffering.
Health court rulings would establish new standards of practice to cover medical circumstances for which common standards have not previously been settled. The health court system would thus yield an essential benefit that our current system of medical justice fails to provide: consistent, rational rulings that send clear signals to health care providers about what constitutes good medical practice. In so doing, it would help eliminate the legal uncertainty that encourages doctors to practice defensive medicine and the silence among practitioners and patients that very likely contributes to medical errors.
Specialized administrative courts are hardly new, so we don’t have to start from scratch. Such courts already handle disputes in many areas: taxes, patents, vaccine injuries, tenant-landlord relations, labor-management strife, interstate trade and nuclear accidents. Beyond these precedents, years of research and writing about the malpractice system and possible alternatives to it provide clear guidelines for how to proceed, including a seminal 2002 Institute of Medicine report recommending demonstration projects at the state level.2
Many European countries already use administrative systems to compensate patients for medical errors. For example, Sweden, Denmark and other Scandinavian countries have administrative compensation systems for avoidable medical injuries that are quick, efficient and far less adversarial. Doctors in these countries help their patients file a claim. The United States can learn something from other advanced democracies in this case.
Health courts should be tested locally and only then scaled up nationally. Some of the nation’s most prestigious medical institutions have volunteered to serve as laboratories for health court experiments: New York-Presbyterian, Duke University Medical School, Emory Healthcare, University of Miami Medical School, Johns Hopkins Medicine, Yale-New Haven Health System and Yale Medical Group.
The Federal start-up funds for health courts could come from a small assessment on medical malpractice insurance premiums. Over time, premiums would fall as compensation for injured patients became more predictable and the new system helped to clarify standards of practice and reduce injuries. Initially, however, premiums would remain fairly stable: Malpractice insurers would no longer pay enormous awards, but they would more frequently pay limited compensation awards for injuries that today unjustly go uncompensated.
Senators Max Baucus and Mike Enzi, with Congressmen Jim Cooper and Mac Thornberry introduced in May 2007 the “Fair and Reliable Medical Justice Act.” This act would authorize states to serve as “laboratories of democracy” and provide grants to test alternatives to the current medical malpractice tort system, such as health courts. This bill represents a bipartisan foundation for true reform, unlike President Bush’s band-aid proposal to put arbitrary caps on jury awards for emotional pain and suffering.
You should therefore endorse the “Fair and Reliable Medical Justice Act” but also urge Congress to press forward with the creation of a health court system. Real health care reform is long overdue, and the health court idea provides a winning combination of good policy and good politics. It is an idea that will work for you, and work for the American people.
For a more detailed description of health courts, see Nancy Udell and David Kendall, “Health Courts: Fair and Reliable Justice for Injured Patients”, Progressive Policy Institute, February 17, 2005.
Janet M. Corrigan, Ann Greiner and Shari M. Erickson, eds., “Liability: Patient-Centered and Safety-Focused, Nonjudicial Compensation”, Fostering Rapid Advances in Health Care (National Academies Press, 2002).