Medical Malpractice Insurance and Defensive Medicine: The Myth of Tort-Reform 'Savings'
Corboy, Philip H., National Forum
From one vantage point, reforming health-care policy is no different from baking bread or building a house: what to leave out is as important as what to put in. This spring the American Medical Association (AMA) and the health-care industry embarked on a very public campaign to add tort "reform" to the Clinton administration's proposed health-care package. They propose saving Americans billions of dollars in health-care costs by reducing malpractice awards and eliminating "defensive medicine." Setting policy in this area is difficult because there is much that we do not know about how the legal system, insurance industry, and medical professions interact. However, we do know more today than we did during previous campaigns to "reform" the civil justice system. What we have learned indicates that limiting the rights of victims of malpractice will not cut costs. In fact, such an occurrence is likely to increase the national health-care bill while lowering the quality of our medical care.
Tort "reform" encompasses a variety of legal changes designed to make it more difficult for injured victims to sue those responsible. These include shorter statutes of limitations, mandatory review of claims by other doctors or Panels, a credit to a defendant doctor for money the plaintiff received from collateral sources, including health insurance, installment payments of awards, and various additional procedural devices. But the reform the medical-care industry wants most, by far, is a limit on the amount of money juries can award injured plaintiffs or the surviving spouses of deceased victims of malpractice. "Most doctors and hospitals say they prefer an outright cap on damage awards," reported the Wall Street Journal on 28 April 1993. The AMA's general counsel, Kirk Johnson, declared that a system that did not include damage caps "is not going to restrain costs."
There is a superficial appeal to this notion in political terms. What better way to win the support of the two most powerful special-interest groups in the field - doctors and insurance companies - than to offer a legal benefit they have sought for decades? Proponents are careful to portray damage limits not as a loss of the legal protections currently enjoyed by all Americans, but as a hit against trial lawyers. Actually, a certain amount of skepticism based on the financial interests of both the legal and the medical professions is healthy. But drastic changes affecting two areas of fundamental concern to Americans, their justice system and their health-care system, must not be imposed on the basis of rhetoric or interest-group politics. This is one decision that ought to be made on the facts. Can those who want malpractice reform added to the health-care package demonstrate that it will reduce the cost of health care for Americans while maintaining its quality?
Tort Reform and Health-Care Costs. A little history is useful at this point. We have survived two "insurance crises" in two decades, and we ought to have learned from the resulting experiences. In the mid-1970s, doctors around the country were hit with dramatic increases in their malpractice-insurance premiums. The insurance industry succeeded in diverting their customers' shock at the skyrocketing price of their product to an attack on the legal rights of malpractice victims. Medical societies and insurers lobbied nearly every state legislature for passage of a list of reforms. In a few areas doctors even threatened to go on strike unless their proposals were passed. Most states adopted some changes, but few imposed caps on damages. The most stringent measures were taken by Indiana in 1975, including a ceiling of $500,000 on medical-malpractice awards, subsequently raised to $750,000. California imposed a $250,000 limit on noneconomic damages such as pain and suffering; disability; disfigurement; and losses of companionship, society, love, and affection.
The crisis cased quickly. …