Practice on Malpractice

Friday, October 9, 2009

In a recent speech to the American Medical Association, President Obama held out the tantalizing possibility of reforming medical malpractice law as part of a comprehensive overhaul of the U.S. health care system. As usual, he hedged his bets by declining to endorse the only medical malpractice reform with real bite: a national cap on damages for pain and suffering, such as the ones enacted in more than thirty states.

These caps, which are usually set between $250,000 to $500,000, can make a substantial difference. The effects of other reforms, such as rules that limit contingency fees, shorten statutes of limitation, or confine each defendant’s tort exposure to his proportionate share of the harm, are small and uncertain.

Medical malpractice, of course, is not just an American issue. Now that the United States is considering universal health care systems similar to those found elsewhere, we should take a peek at those countries’ medical malpractice systems—which usually attract far less controversy, and are far less expensive, than our own.

Litigation in the United States has at least four distinctive procedural features that drive up malpractice costs. The first is jury trials, which can veer out of control and in any case introduce significant uncertainty. The second is the contingency-fee system, which allows well-heeled lawyers to self-finance litigation. The third is the rule that each side bear its own costs; this induces riskier lawsuits than are undertaken in most other countries, including Canada, Britain, and most of Europe, where the loser pays the legal costs of the winner. The fourth is extensive pretrial discovery outside the direct supervision of judges, which occurs far more readily here than elsewhere.

One study found that the frequency of medical malpractice in Canada was about the same as in the United States—at about 10 of percent of the cost. On malpractice, at least, score one for Canada.

Even these features fail to tell the whole story. American judges frequently let juries decide whether honest mistakes are negligent. Judges in other nations are less likely to do so. American courts commonly think it proper for juries to infer medical negligence from the mere occurrence of a serious injury. European judges usually will not.

American plaintiffs are sometimes spared the heavy burden of identifying particular acts of negligence or of showing the precise causal connection between a negligent act and an actual injury. Finally, damage awards for lost income and medical expenses in the United States tend to dwarf awards made elsewhere—in part because governments elsewhere provide this medical care from their nationalized systems. In sum, the medical malpractice system provides incentives for plaintiffs that really do matter. Americans, for example, file claims about 3.5 times more often than Canadians.

The overall picture is still more complex because there are major variations in medical malpractice rules in different American states and differences within states, such as between juries in big cities and those in small towns. Doctrinal reform cannot stop these abuses. What is needed is to replace juries with specialized commissions such as those in France, which help reduce litigation expenses and promote uniformity in case outcomes across regions.

What does this quick survey teach us about the ability of our system to deter medical injuries and compensate its victims? Not much that’s encouraging.

A study led by David Studdert published in the 2006 New England Journal of Medicine concluded that the administrative expenses of the malpractice system were exorbitant. Worse, it found errors in jury verdicts in about a quarter of the litigated cases. Juries denied warranted compensation in 16 percent of the cases and awarded unwarranted compensation about 10 percent of the time. (These error rates don’t include damage awards set at improper levels.)

What is needed is to replace juries with specialized commissions like those in France, which help reduce expenses and promote uniformity in outcomes.

More disturbing, a 1992 study by Donald Dewees and Michael Trebilcock in the Osgood Hall Law Journal concluded that the frequency of medical malpractice in Canada was about the same as in the United States—at about 10 percent of the cost. In other words, our costly system doesn’t seem to do much to deter malpractice. On medical malpractice, at least, Canada does better than the United States.

The United States cannot ignore serious reform. Medical malpractice premiums constitute well under 1 percent of the total U.S. health care bill, but defensive medicine adds perhaps as much as 10 percent. High malpractice costs can shut down clinics that serve vulnerable populations, leading to more patient harm than the occasional case of malpractice.

The best reform would be to allow physicians, hospitals, and patients to contract out of the liability mess by letting the parties reject state-imposed malpractice rules. They could, for example, choose to arbitrate, to waive jury trials, or to limit damage recovery. Stiff competition and the need to maintain reputation should keep medical providers in line in such a system. Market-based solutions that make the private sector more responsive should in turn undermine the case for moving headfirst into a governmentrun health care system with vast, unintended inefficiencies of its own.