Published 1/1/2010
David H. Sohn, JD, MD; Sharat K. Kusuma, MD, MBA; Anand Murthi, MD

Medical liability reform: An update

If not caps, what are the alternatives?

When the topic of healthcare reform first surfaced, many in the medical community viewed it as an opportunity to finally address our nation’s medical liability crisis. Because the early debate centered on cost containment, they hoped that instituting caps on noneconomic damages would be proposed as a means of reducing costs without compromising quality.

Already proven effective in California and Texas, caps have been shown to reduce the costs associated with “defensive medicine”—the ordering of tests and procedures to reduce the possibility that the physician would be sued. Studies have found that, when caps are in place, overall medical costs are reduced by 5 percent to 8 percent. If caps were federally mandated, they would save $174 billion per year.

Despite these facts, President Obama stated in his June 2009 address to the American Medical Association that caps would not be part of his healthcare reform package. Comments from Douglas Elmendorf, director of the Congressional Budget Office, however, brought caps back into the debate. In a letter to Sen. Orrin Hatch (R-Utah), Mr. Elmendorf wrote that any healthcare overhaul should include caps on noneconomic damages of $250,000, as well as other caps and liability reform, to contain costs.

The House bill
The massive healthcare reform bill introduced in the House of Representatives (HR 3962) acknowledges a need for liability reform, but actually forbids caps on damages. It also specifically forbids any attempts to reduce attorney fees.

The House bill leaves liability reform to the states, with federal rebates to be awarded if reform programs are shown to be effective. The measure provides that the Secretary of Health and Human Services “shall make an incentive payment, in an amount determined by the Secretary, to each State that has an alternative medical liability law in compliance with this section (2531).” Among the conditions that must be met before the incentive is awarded is that “the law does not limit attorneys’ fees or impose caps on damages.”

The bill’s stance on liability reform teaches two lessons, the first of which is the importance of political involvement. At first glance, it may appear odd that a healthcare reform bill would include protection clauses for attorney fees, as well as specifically ban damage caps. According to the Center for Responsive Politics, however, trial lawyer special interest groups have made nearly $30 million in political contributions to the Democratic Party over the past 20 years. Such funding is possible because more than 90 percent of trial lawyers contribute to their political action committees. By comparison, less than 10 percent of physicians make similar contributions. Therefore, although it is disappointing that caps are not part of the healthcare reform, it’s not entirely unexpected.

The second lesson is that, unless there is a shift of power in Washington, medical liability reform will likely have to take alternative forms. Caps currently in effect will not be affected, but passage of new caps is unlikely. Cost containment through medical liability reform will have to be achieved with other potential solutions such as “loser-pays” systems, specialized tribunals, or no-fault compensation.

Loser-pays systems
The loser-pays system, in which the plaintiff has to pay court costs if he or she loses, is meant to prevent frivolous litigation. It was proposed in response to the high percentage (more than 60 percent) of medical malpractice lawsuits that are summarily dismissed as meritless.

Although this system may appear fair, it does have some drawbacks. First, it may be too much of a disincentive for the plaintiff who has a strong claim, but would be devastated by a loss. Also, unlike caps, it has not been effective on a state level. When instituted in Florida, this system was repealed after 5 years, because plaintiffs, who now had even more to lose with a defeat, fought harder and were less likely to drop a claim. Plus, even if they lost, plaintiffs often lacked the funds to compensate the defendant for attorney fees.

Specialized tribunals
Specialized tribunals have been proposed to promote predictable and equitable trial outcomes. Studies have shown that juries have difficulty differentiating between negligence and bad outcomes, and that the most significant factor in the size of an award is not based on the physician’s negligence, but rather on the degree of the plaintiff’s disability. Because complications and bad outcomes are part of medicine, if physicians are punished when they occur, physicians may begin to avoid performing high-risk procedures or treating very sick patients.

Specialized tribunals would consist of physicians, or judges who specialize in medical trials, who would hear and decide medical liability cases. Specialized tribunals are currently used in patent law; they have also been successfully used in some automotive engineering trials and trials surrounding the September11, 2001 attacks on the World Trade Centers, which had emotional components that made juries potentially unreliable.

Specialized tribunals, however, are also problematic. The U.S. Constitution guarantees the right to be tried by a jury of one’s peers, not an administrative court. In addition, 25 cents of every healthcare dollar is already spent on administrative costs rather than actual health care. The establishment of a new adjudication system would likely add to this.

No-fault compensation
No-fault compensation may be the most promising cost-containment alternative. The current tort system is both extremely expensive and slow—the average time to trial is more than 3 years.

The current tort system is also unfair. A 2006 New England Journal of Medicine article found that 54 percent of awards actually go to the plaintiff’s attorney instead of compensating the injured party. Additionally, good evidence exists to indicate that the traditional tort system, which aims to deter bad behavior, is ill-suited to the medical field. Physicians as a group are high-minded and already motivated to deliver high quality of care. An Institute of Medicine report in 1997 found that most medical errors are systemic in nature, and not the result of negligence.

To truly make a difference in reducing medical errors, the medical liability system itself must change. The current blame-based system is stressful to physicians, encourages the costly practice of defensive medicine, and does not inspire the open disclosure of errors, which otherwise could be used to improve the overall system. Compensation without findings of negligence, according to a preset dollar figure for each injury sustained, would bypass these problems and encourage a more open dialogue about how to improve medical care.

What’s next?
The current medical liability system needs reform. It is unfortunate that caps on noneconomic damages, a proven cost-containment measure, have been restricted in the current healthcare reform debate.

As a result, physicians will need to become more involved in the political debates and increase their support of national professional and state medical societies. Medical liability reform may be more difficult in the future, but it is not impossible. States and hospitals should look at alternatives, especially establishing no-fault compensation schedules.


  1. David H. Sohn, JD, MD, is a 2009 Washington Health Policy Fellow; Sharat K. Kusuma, MD, MBA, is a Washington Health Policy Fellow alumnus; Anand Murthi, MD, is a member of the 2008-2009 Leadership Fellows class.
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