Alabama legislators proved earlier this year in a controversial special session that debating medical malpractice reform is similar to trying to resolve the chicken or the egg issue.
Which came first? Greedy lawyers and overly sympathetic juries that produce huge, unfair medical malpractice awards and force doctors to resort to defensive medicine? Or negligent providers who deserve to be sued because they are more concerned with profits than patients?
Since 1986, more than 40 states, including Alabama, have taken steps to rein in malpractice costs. They have capped damage awards, modified the rule that designates hospitals the "deep pocket" when physicians don't carry enough insurance to cover big judgments, and allowed installment payments rather than lump-sum awards.
Trial lawyers and consumer groups contend there is scant evidence over the past 10 years that such tort reform has reduced malpractice claims paid, limited awards, reduced malpractice premium costs or held down healthcare inflation.
Insurers, providers and business groups say medical malpractice lawsuits, premiums and healthcare costs would be much higher if the reforms weren't on the books. And they contend more safeguards are needed.
After 30 days of debating tort reform, Alabama legislators failed to enact a promised punitive damages cap. Gov. Fob James Jr. may call another special session in July to try to improve the state's tort system.
At the federal level, although tort reform has been one of the most hotly debated and critical issues in the healthcare insurance legislation under consideration, it appeared unlikely late last week that such reforms would survive in the final bill. The House had approved tort reform amendments to the Senate-approved health insurance bill sponsored by Nancy Kassebaum (R-Kan.) and Edward Kennedy (D-Mass.) at the request of the medical, business and insurance lobbies, but Senate negotiators were opposed to the provisions.
Nevertheless, the tort reform issue is gathering steam again, much as it did in the mid-1980s when many bills were approved at the state level in an attempt to make insurance more affordable.
Now, tort reform advocates are pointing to the high costs of defensive medicine as a reason to cap damages. However, some experts believe the increasing influence of managed care will force physicians to order fewer tests and defensive medicine costs will consequently be reduced.
But consider these facts before the issue is further clouded with rhetoric:
National statistics indicate claims and payments in malpractice lawsuits against physicians and hospitals decreased from 1985 to 1990. Since 1991, claims and payments have fluctuated. In 1994, payments were down 30% to a median of $350,000 from $500,000 in 1993, according to Jury Verdict Research, a Horsham, Pa.-based legal research firm.
Medical malpractice cases represent between 5% and 7% of all tort cases, a figure that hasn't changed much during the past 10 years, Jury Verdict said.
Insurance premiums for hospitals and physicians have remained stable or declined during the past 10 years, insurance executives said.
There is, however, some evidence that the movement toward integrated delivery systems coordinating care has stimulated an increase in some medical malpractice claims, including failure to diagnose or treat and improper use of utilization review, according to A.M. Best, an Oldwick, N.J.-based insurance rating firm.
Insurers also are concerned that medical malpractice cases could increase if provider service networks are allowed to contract with Medicare patients.
"This trend generally prompted malpractice insurers to establish higher initial loss reserves on policy years 1990 through 1994," an A.M. Best spokesman said.
While not directly addressing hospitals, Farmers Insurance Group of Los Angeles said claims increased from 1991 to 1995 against physician groups that contract with HMOs. Farmers insures 32 HMOs and 52 physician groups nationwide (May 20, p. 17).
If claims rise and profitability dips for insurers, hospitals forming integrated delivery systems with physician groups will be asked to pay higher premiums to cover malpractice payouts or beef up reserves for future claims, experts said.
"We are in a soft market right now, but we don't know how long it will last," said Wayne Sinclair, senior vice president and general counsel of MMI Cos. and chairman of the Healthcare Liability Alliance. The alliance is a coalition of tort reform supporters that includes the American Hospital Association, the American Medical Association and the Health Insurance Association of America.
Sinclair said there are several reasons why insurers haven't increased rates the past few years, but tort reform isn't high on the list. Hospitals have beefed up their risk-management systems and are providing higher quality care. Also, competition between insurers for business has increased their desire and capacity to write policies. And, judgments are somewhat lower because the public is becoming more educated about the effect of high verdicts on healthcare costs.
In fact, at least one tort reform supported by the American Trial Lawyers Association and opposed by the medical lobby-raising the minimum level of malpractice insurance for physicians-would decrease premiums and increase availability, Sinclair acknowledged (See related story, p. 32).
So, if premiums are stable, claims are stable, hospitals are providing higher-quality care and the public is reducing jury awards because of concern about the effect of runaway verdicts on healthcare costs, why is there a need for tort reform?
"I don't know whether tort reform affects premiums or not," Sinclair said. "My gut feeling is that (tort reform) has a positive effect, but we don't have any data on hospitals. There is no question (the litigation threat) increases healthcare costs through defensive medicine."
Defensive medicine. During the mid-1980s, arguments for tort reform centered on making malpractice insurance available, affordable and accessible to hospitals and physicians following an increase in medical malpractice and product liability claims in the 1970s and early 1980s.
But now, in Alabama, in Washington and across the nation, supporters of tort reform are arguing that frivolous malpractice lawsuits and large jury awards or settlements cause providers to practice more defensive medicine.
Proponents of the defensive medicine theory hold that high damage awards lead to unnecessary tests and procedures, driving up healthcare costs. Moreover, they say, large judgments encourage insurers to raise premiums, which further contributes to healthcare inflation.
From 1988 to 1992, inflation on total healthcare spending averaged more than 10% a year. In 1994, the most recent statistics available, the spending growth rate slowed to 6.4%, according to HCFA.
"We would like to see damages capped," said Michael Horsley, president of the Alabama Hospital Association. "When there is a question in the mind of a physician of the efficacy of a test or procedure, they err on the side of caution and conduct the test because they are concerned of a high damage award. That drives up healthcare costs."
The high cost of defensive medicine has become a hot argument for tort reform proponents. These advocates believe they have a winning combination in linking medical malpractice to the larger issue of healthcare inflation, which the public now understands is a major problem because of the national reform debate.
"Defensive medicine is the overarching issue that touches on all the reform proposals," said Gaelynn McGavick, an AHA attorney. "Our tort system is out of whack because a lot of unnecessary care gets furnished out of the danger of liability. If you cap it, then only care that is necessary will be delivered."
McGavick said hospitals and physicians are worried that "if you skip one test, the defense attorneys will point to that" as a negligent act in a malpractice lawsuit.
Over the long haul, Horsley of the Alabama Hospital Association said, tort reform is important for hospitals as they assume more risk through managed care, coordinate care with physicians and develop into integrated delivery systems.
"Managed care might reduce defensive medicine (without tort reform)," he said. "But tort reform, in conjunction with managed care, will be very helpful in (system) development. It will give administrators a comfort level they don't have right now."
But patient rights activists and trial lawyers believe the defensive medicine argument is overstated and that medical malpractice can only be reduced by making providers financially accountable for errors.
"Tort reform only has made it harder for patients who have been injured in a hospital to sue," said Debra Zappi, deputy executive director of the Academy of Florida Trial Lawyers, a state group opposed to tort reform.
"This is a fabricated crisis with myths about defensive medicine and rising malpractice claims and awards. The statistics don't support the need for tort reform," Zappi said.
From 1990 to 1994, claims per 100 hospital beds declined from 3.7 to 3.4, according to data provided by St. Paul Fire and Marine Insurance Co., the nation's largest medical malpractice insurer covering 1,500 hospitals.
Average payments per hospital claim also decreased from $95,000 in 1990 to $87,000 in 1993, company officials said. However, in 1994, average claims paid increased to $121,000. The data exclude payments of greater than $1 million, which generally account for about 30% of the total claims paid.
As a result, St. Paul's hospital premiums haven't increased on average the past five years, according to a MODERN HEALTHCARE* review of company records. St. Paul declined to provide exact numbers.
"The real problems that need to be addressed are the high number of bad doctors who are practicing medicine, the hospitals that deliver faulty care and the medical malpractice insurers that are reaping tremendous profits," Zappi said.
Nationally, insurance companies posted a 38.6% pretax profit margin in 1994 on their medical malpractice insurance lines, said A.M. Best Co., an Oldwick, N.J.-based insurance rating company. From 1990 to 1994, profit margins averaged 20.4%.
"Statistics can be used by both sides to score points. This is a policy issue," said Seymour Joyce, president of the American Tort Reform Association, a Washington-based lobbying group that represents insurance companies, large corporations, schools and small businesses. "It's about how we want our (judicial) system to compensate injuries. Looking at costs misses the point."
Still, Joyce said the ATRA believes defensive medicine costs can be reduced by aggressive tort reform efforts and those savings can be passed along to consumers and providers. In addition, lower premiums can help communities retain physicians and high-risk services at hospitals, he said.
"We believe the problem is the justice system, not the quality of hospitals or physicians," Joyce said.
National reform. The AHA supports medical malpractice provisions in the House health insurance bill that cap noneconomic damages at $250,000, limit punitive damages to three times compensatory damages and allow periodic payment of judgments instead of lump sums.
Most important to hospitals, however, is eliminating the dreaded "joint and several" rule for noneconomic damages because it designates hospitals as the "deep pockets."
For example, under joint and several, hospitals named in malpractice suits could be responsible to pay 98% of the judgment even though physicians were 99% responsible, McGavick said. Hospitals are sometimes liable for the bulk of the award when a physician is underinsured, she said.
"Changing joint and several (to proportionate liability) goes to the heart of hospitals and speaks to a fundamental fairness," McGavick said. "If a hospital is 25% at fault, that is how much the hospital should pay."
A spokesman for the American Trial Lawyers Association said another solution to removing hospitals as deep pockets is for states or Congress to require physicians to carry a higher minimum amount of malpractice insurance.
Neither the AMA nor the AHA has taken a position on minimum insurance requirements for physicians, association spokesmen said. However, Bill Bell, general counsel for the Florida Hospital Association, said, "Why should we support something that will increase the pot of money for (trial lawyers) and alienate physicians on our medical staffs?"
Danger signs are on the horizon for hospitals and insurers. A 1995 Harvard University study indicates hospital malpractice claims are rising faster than physician lawsuits.
Harvard researchers found patients are more likely to suffer from an error in treatment as a result of faulty hospital procedures rather than from the performance of physicians, nurses or pharmacists.
The study concluded hospitals should devote more resources to reduce errors and avoid malpractice.