October 2003 Bulletin

Across the President's Desk

Alternate approaches to medical liability reform

There is no doubt that the current efforts of our Association and physicians in our sister organizations to push for medical liability reform at both the state and federal level are extremely important. Already in Texas, a recently passed constitutional amendment permitting caps on non-economic damages for physicians at $250,000 and hospitals at $500,000 will reduce premium costs to the physicians. At least one insurance carrier in Texas has stated that as a result of this action, malpractice insurance premiums will decrease by 12 percent in January for physicians in Texas.

However, as important as these changes are in addressing the malpractice issue, I believe that these types of "first generation reforms" will prove to be short-term in the scheme of events because they do not address the underlying flaws in the current process. Of greater importance, these first generation reforms do little if anything to address the real problems of patient safety and medical error.

Ideally, the fundamental goals of medical liability reform should be to reduce costs, to compensate patients fairly and, most importantly, to reduce repeated errors and improve patient safety. For these reasons, I believe we should be pursuing second and third generation reforms that will introduce different systems for reviewing medical cases, as well as different systems for compensating patients. The goal of these reforms should be to create a system that not only stimulates a reduction in medical error and improvement in patient safety, but also is fair to all patients when they have suffered an unintended consequence in their care, whether due to negligence or a complication of their medical condition.

This article will provide an overview of both short-term and long-term reforms to the existing tort litigation and insurance compensation systems. These reforms are outlined as first, second and third generation reforms in the accompanying table. I believe we need to explore and advocate for these types of reform measures if we are going to truly change the medical liability system to one that gives incentives to both doctors and hospitals to improve patient safety, and includes strategies for identifying and removing bad physicians.

Current approaches not working

As we know from our own experiences, tort reforms of the 1970s, '80s and '90s have had little or no effect on the frequency or severity of malpractice claims. In a review article of these reforms, Paul Weiler concluded that ". . . legislative tort reform has been relatively ineffective in changing litigation performance and only temporarily has made changes in insurance rates." Of equal concern, litigation has not worked well to compensate injured patients or to curtail negligence.

Even though MICRA has been in place for over 25 years in California, there are constant threats to its continued success. I believe that there will be constant threats at both the state and eventually the federal level if we rely on the current focus of reform legislation; the reforms I refer to as first generation reforms in the table. Given the realistic expectation that the legal profession will continue to challenge current reform measures, as well as the fact that these measures are not adequate for addressing problems with the current system, I believe we need to replace the current systems of review and compensation with new approaches.

Changes in process and financial liability

Looking beyond current first generation reforms that simply cap awards to patients, there are two broad categories of alternatives for addressing the medical liability crisis. These include changes in the process and procedures for handling medical injury cases and changes in financial liability. These proposed changes are referred to as second and third generation reforms in the table.

Scott Freland states, "An ideal medical malpractice dispute resolution system should provide compensation for patients injured through medical negligence, provide an incentive for doctors and hospitals to reduce medical negligence, preserve the doctor-patient relationship whenever possible and optimize cost efficiency. However, the current tort-based litigation system for medical malpractice wholly fails to meet these standards."

With this "ideal" in mind, second generation reforms, as shown in the table, are those aimed at changing the way medical cases are currently handled in the civil justice system, specifically through tort litigation with jury trials. Some of the concerns with the current system are that there is essentially no mechanism for determining the credibility or merits of individual cases before they are moved through to trial. Although some mechanisms do exist, they often put undo pressure on physicians to settle in order to avoid greater financial exposure in terms of time and actual awards. A proposed reform to address this issue would be torequire that all claims be reviewed by an expert medical panel and receive a "certificate of merit" in order to progress to the next step.

Two related alternatives are to replace the current system of jury trials with trials by medical courts and/or the use of clinical expert panels for mediation. While these mechanisms could be implemented to provide some screening of cases, they would be subject to tough constitutional scrutiny if they completely replaced a patient's right to a jury trial. However, Congress can and has made exceptions allowing special courts and expert judges. Because the courts, including the Supreme Court, use "minimal scrutiny" if the legislature passes reform measures to lower health care costs or to avoid an insurance crisis, it is most likely that reform will be upheld in the courts.

There already exists an allowed partial alternative to tort-it involves severe injuries, i.e., severely neurologically impaired infants, in Florida and Virginia. Such cases are in administrative compensation, not in conventional courts.

In January of this year the Pennsylvania Trial Lawyers Association said it historically has favored measures to reduce litigation costs as long as they don't infringe on the legal rights of patients or their ability to receive full and fair compensation for their injuries. Opinions such as these may provide an opportunity for second generation reforms to replace the current tort system by jury trial. While promising, reform of the tort system alone will not provide sufficient incentives for improving patient safety.

New approaches to compensation

Third generation reforms include new approaches for compensating injured patients. This category of reform is clearly the most radical departure from our current system but as such promises the greatest overall benefit to the quality of health care.

Our current system of legal and financial responsibility for adverse events in medical care grew out of an assumption that adverse events and unintended consequences of patient care were primarily the responsibility of individual physicians, not hospitals. While hospitals are often included in specific cases, it is the physician who bears the burden for the payment of economic damages; the hospital's financial liability may be much lower. For example, in Massachusetts, non-economic damages paid by physicians are capped at $500,000, while the cap on non-economic damages paid by hospitals is $20,000. Unfortunately this situation has provided hospitals and centers of care with little if any incentive to improve their systems to avoid medical error and adverse events and to provide tools and safeguards for practicing physicians, e.g., computerized order-entry systems. Instead, the current system has provided physicians with the incentive to practice defensive medicine, in many cases subjecting patients to extra tests and procedures.

Enterprise liability

In this context a third generation reform, enterprise liability, is considered to be a viable alternative to the current system. Under enterprise liability, hospitals and their leaders-CEOs and boards of trustees ("the health care system")-are held responsible for medical errors and adverse events that happen in their institutions. However, similar to enterprise liability in the airline industry where pilots continue to be held responsible in cases of substance abuse or if accepted protocol or standards are not followed, physicians would continue to be held liable for economic damages under similar conditions. This would provide a powerful incentive for hospital leadership to implement patient safety measures and strategies and to monitor patient safety in their institutions.

Enterprise liability would also provide institutions with incentives for requiring their medical staff to identify and follow best practice standards of care. Likewise the benefits to practicing physicians to follow standards of care are obvious. Even greater incentives could be built into the enterprise system by providing institutions with insurance discounts for implementing those measures that are known to reduce medical error, e.g., computerized order entry as well as discounts if certain quality objectives are met. The advantages of enterprise liability would be further enhanced if coupled with the apparent advantages of a medical expert review system and not in a jury trial system.

No-fault insurance

Another third generation reform is a type of no-fault insurance. In such a system, patients, physicians and hospitals would have insurance to cover losses. Blame would not be a major focus except in cases of impairment or misuse or underuse of standards of care. The opportunity for confidential peer review analysis of adverse events would follow.

Adverse events could be analyzed in depth and steps taken to insure the same errors would not recur-something that is lacking in our current system. It does no one any good to continue to experience the same adverse events repeatedly and to sue the same individuals or hospitals repeatedly for the same problems. We need to have a system in place that eliminates or greatly reduces any recurrence.

Other options

Another example of the third generation of reform is patient-purchased protection. Patients and, in some cases, caretakers and hospitals would purchase an insurance policy providing the patient with economic awards in case of injury.

A fourth approach is a switch from tort law altogether to contract law. An explicit contract "would clarify the duties of health care providers and foster development of efficient methods to resolve health care disputes."

Personally I favor enterprise liability first and no-fault insurance second. I support enterprise liability mainly because it provides everything that Freland states is an "ideal" medical malpractice dispute resolution-it would provide reasonable compensations for injured patients; importantly there would be an incentive for hospitals, including the CEO and Trustees, to improve patient safety and reduce medical negligence; and, it would help to preserve the doctor-patient relationship and finally optimize cost efficiency.

James H. Herndon, MD, MBA

Alternative Approaches

First generation reforms

Second generation reforms

Third generation reforms

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