Four Myths of Medical Malpractice Reform

Separating facts from wishful thinking.

Next week, House Speaker Paul Ryan, R-Wisconsin, and his fellow Republicans plan to unveil a comprehensive health care reform package intended to replace Obamacare with a better system.

That’s good news. It’s long past time for Obamacare to go. The list of the ACA’s problems is long and growing. In its place, we need a market-based and consumer-driven system. Realistically, the only way to get there is to reduce the federal role in health care, sending these issues back to the states and the private sector where the Constitution wisely leaves them.

Unfortunately, congressional Republicans don’t plan to reduce the federal role, at least not much. Instead, they hope to rationalize and streamline it, through a number of reforms that have long been on their members’ wish lists. Among other things, the forthcoming package is likely to include: tax credits for the uninsured, more robust Health Savings Accounts (HSAs), and a law allowing consumers to purchase insurance “across state lines.” The package will probably also include greater flexibility for state Medicaid programs and more choice for Medicare seniors. While not ideal, such a package would constitute progress.

One Republican favorite that should be left out is medical malpractice reform.

Hill Republicans claim “med-mal” reform would reduce the number of frivolous malpractice lawsuits and thus out-of-control health care costs, without impeding the speedy resolution of meritorious malpractice claims. If true, that would be great. But it’s based on wishful thinking.

Among the most commonly mentioned ideas for reforming medical liability are: 1) caps on punitive damages, which are designed to discourage frivolous lawsuits from being filed in the first place; 2) specialized health care courts or administrative tribunals designed to get such lawsuits out from under traditional judicial rules; 3) various alterations of the rules of judicial procedure, such as legal safe harbors for physicians who follow evidence-based best-practice guidelines, mandatory independent pre-discovery medical review panels, “loser pays” rules, shorter statutes of limitations, and a higher burden of proof for plaintiffs to overcome summary judgment; and 4) alternative approaches aimed at making claims more easily resolvable without litigation, such as pre-negotiated injury-compensation contracts modeled on workman’s comp.

Many of these ideas may be sensible. Some are appealing. (I find the “workman’s comp” idea particularly attractive). And happily, a number of them have been tried in one or more states.

But the case for federally overriding the state experiments is weak. It rests largely on four broad claims, all of which turn out to be myths.

Myth 1: Medical malpractice is a major drive of health care costs

Not really. This question has been studied for decades. The best estimates put the cost of malpractice litigation in the vicinity of 2 to 5 percent of total health care spending. A major study in 2010 placed the figure at 2.4 percent or about $55.6 billion a year. That’s peanuts. The Congressional Budget Office has estimated that federally imposed tort reforms, including caps on punitive and noneconomic damages, would save taxpayers around $5 billion a year, which is about one-tenth of one percent of total federal outlays.

Why, then, do physicians perceive such litigation as a major cost driver? Probably because it is a threat to their reputations and can be a major nuisance, and because it touches most doctors. In a December 2015 panel talk at Washington’s American Enterprise Institute, Anupam Jena, M.D., of the Harvard Medical School reported that surveys, including his own, find that nearly 100 percent of physicians in high-risk specialities are sued at least once in their career, about 70 percent of physicians pay at least one malpractice claim, and the average physician spends 11 percent of his career with an open malpractice suit. And yet most physicians do not suffer from excessive malpractice insurance rates.

The problem, and the benefits of reform, are exaggerated.

Myth 2: We know which reforms work best

We don’t. As Ramesh Ponnuru bluntly summarizes, “[W]e don’t really know the best way to reform the system. Would a legal ‘safe harbor’ for doctors really work? … Where should [a] cap [on malpractice damages] be set? We don’t know.” The only way to find out, of course, would be to let states experiment, and compare results. Which is what we’re currently doing. States can reform their tort systems at any time, and many have. Federal legislation would only get in the way.

Myth 3: Capping damages discourages frivolous suits

The evidence in support of damage caps is not impressive. Caps on punitive and noneconomic damages are the most popular proposal in most Republican med-mal bills, and the Congressional Budget Office gives them the most credit for the cost savings associated with med-mal reform. But Michael Morrissey of the University of Texas A&M reports that, in the 20 or so states where caps have been tried, while damage caps do slightly reduce claim volume, they also harm small claimants and consumers with smaller injuries. Basically, they shut the door of justice for the little guy. Meanwhile, according to Professor David Hyman of the University of Illinois, new research suggests that damage caps may actually increase health care spending. (These findings are from the same panel talk cited under Myth 1.)

Myth 4: Federal reforms are constitutional

No, actually, they’re not. Congress has no constitutional authority to interfere with state tort systems. Except in the area of interstate commerce, the Founders left the whole area of civil justice to the states, and made their intention to do so very clear. And not even the all-purpose Commerce Clause allows federal intervention in this area. Medical torts are by their nature intrastate, not interstate, because malpractice disputes are inherently local and private. When a case involves parties from two different states, it is usually resolved in one of the states’ courts or else in federal court using the substantive rules of the state where the federal court is located. It’s always essentially local.

Is med-mal reform constitutional when narrowly limited to cases arising out of federal programs like Medicare? No, because the Founders intentionally left such matters to the states

Could Congress offer states financial inducements to reform their own tort systems? The Supreme Court currently says yes, so long as the federal inducements are not “coercive.” But this permissiveness flies in the face of the traditional, and perfectly sensible, rule that “What Congress may not do directly, it may not do indirectly.”

As a practical matter, regardless of how direct or indirect, or how narrow or broad, the proposed federal intervention, it’s going to be opposed on principle by numerous legal experts and thinkers, and on policy grounds by the states. And the number of congressional opponents is large and growing.

Conclusion

To sum up, federal health care reformers should just let the whole “med-mal” thing drop, because:

  1. It’s unconstitutional.
  2. It’s unnecessary.
  3. We don’t know which reforms work best.
  4. The potential benefits are modest.

No wonder the states, many in Congress, and numerous leading conservatives all oppose federal “med-mal” reform.

Speaker Ryan and company should leave this one to the states.

Dean Clancy, a former senior budget official in the George W. Bush administration and senior policy advisor to congressional Republicans, writes on U.S. fiscal, health policy, and constitutional issues. Follow him at deanclancy.com or on twitter @deanclancy.

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