Capping Malpractice Payments

The costs of capping malpractice payments fall disproportionately on low-income workers, children, and the elderly:

Lacking lawyers, justice is denied, by Daniel Costello, Los Angeles Times: ...In 1975, California enacted legislation capping malpractice payments after an outcry ... that oversized awards and skyrocketing insurance rates were driving physicians out of the state.

The law limited the amount of money for "pain and suffering" ... to $250,000. There is no limit on what patients can collect for loss of future wages or other expenses.

Over the years, it has been easy to quantify the effects of the law, known as the Medical Injury Compensation Reform Act, or MICRA. In the years since the law was enacted, malpractice premiums in California have risen by just a third of the national average, and doctors say the law now helps attract physicians to the state. Proponents also say it discourages frivolous lawsuits.

Thirty states have enacted similar legislation. Two Republican presidential candidates -- Mitt Romney and Rudolph W. Giuliani -- have recently endorsed the approach as a possible national model.

It's been harder to tally the law's costs. Critics say it is increasingly preventing victims and their families from getting their day in court, especially low-income workers, children and the elderly. Their reasoning: The cap on pain and suffering has never been raised nor tied to inflation.

Meanwhile, the costs of putting on trials are often paid by attorneys and continue to rise each year. That means those who rely mainly on pain and suffering awards -- typically people who didn't make much money at the time of their injury -- are increasingly unattractive to lawyers.

Several states have set their malpractice caps considerably higher than California's because of worries that they affected poorer patients the most. Some state courts have begun to examine the fairness of their malpractice laws, especially those not tied to inflation. ...

A 2003 Rand Corp. report found that the law has reduced jury awards by 30%, and that the savings have come largely at the expense of severely injured or impaired patients.

On average, California juries (which are rarely informed of the cap during trials) awarded $800,000 in malpractice death cases from 1995 to 1999, but the amounts were later reduced to $250,000 under the law. This suggests that medical malpractice victims and their families could be reaping much larger payouts... But proponents of MICRA say raising the cap could harm patients.

"Raising the MICRA cap would significantly increase healthcare costs, limiting patient access to doctors, hospitals and clinics throughout California," said Lisa Maas, executive director of ... a trade group. "MICRA protects patient access to healthcare." ...

The link between malpractice payouts and increases in doctors' insurance premiums, though, remains unclear. One of the largest studies done on the topic -- by Dartmouth College researchers in 2003 -- concluded that malpractice payments had risen in line with medical care costs, whereas doctors' insurance premiums grew far faster -- by double-digit percentages annually for some specialties.

To some, that suggests that recent malpractice premium increases may have had more to do with insurers' business models and financial investments -- including documented losses in their investment portfolios in recent years -- than with their core businesses. ...

Do malpractice awards increase healthcare costs? From the CBO:

Limiting Tort Liability for Medical Malpractice: To curb the growth of premiums, the Administration and Members of Congress have proposed several types of restrictions on malpractice awards. ... Limits of one kind or another on liability for malpractice injuries, or "torts," are relatively common at the state level: more than 40 states had at least one restriction in effect in 2002.

Evidence from the states indicates that premiums for malpractice insurance are lower when tort liability is restricted than they would be otherwise. But even large savings in premiums can have only a small direct impact on health care spending--private or governmental--because malpractice costs account for less than 2 percent of that spending. Advocates or opponents cite other possible effects of limiting tort liability, such as reducing the extent to which physicians practice "defensive medicine" by conducting excessive procedures; preventing widespread problems of access to health care; or conversely, increasing medical injuries. However, evidence for those other effects is weak or inconclusive.

So the argument that lack of malpractice limits "would significantly increase healthcare costs" seems fairly weak.

The CBO report also summarizes the efficiency and equity issues involved in caps:

Issues surrounding the effects of the malpractice system and of possible restrictions on it can be viewed as questions of economic efficiency (providing the maximum possible net benefits to society) and equity (distributing the benefits and costs fairly).

Fairness is ultimately in the eye of the beholder. But the common equity-related argument for malpractice liability is that someone harmed by the actions of a physician or other medical professional deserves to be compensated by the injuring party.

The efficiency argument is that, in principle, liability (as a supplement to government regulations, professional oversight, and the desire of health care providers to maintain good reputations) gives providers an incentive to control the incidence and costs of malpractice injuries. In practice, however, the effect on efficiency depends on the standards used to distinguish medical negligence from appropriate care and on the accuracy of malpractice judgments and awards. If malpractice is judged inaccurately or is not clearly defined, doctors may carry out excessive tests and procedures to be able to cite as evidence that they were not negligent. Likewise, if malpractice is defined clearly but too broadly or if awards tend to be too high, doctors may engage in defensive medicine, inefficiently restrict their practices, or retire. Conversely, if doctors face less than the full costs of their negligence--because they are insulated by liability insurance or because malpractice is unrecognized or undercompensated--they may have too little incentive to avoid risky practices. For all of those reasons, it is not clear whether trying to control malpractice by means of liability improves economic efficiency or reduces it.

The report concludes with:

In short, the evidence available to date does not make a strong case that restricting malpractice liability would have a significant effect, either positive or negative, on economic efficiency. Thus, choices about specific proposals may hinge more on their implications for equity--in particular, on their effects on health care providers, patients injured through malpractice, and users of the health care system in general.

There is reason to be concerned about the equity of limiting award payments as compensation for injuries, i.e. of having payments that are too low when injury or impairment is severe, particularly since there are no discernible efficiency gains from the restrictions. But there is also another reason to be concerned about equity. If, as claimed above, there are costs from the restrictions on awards that fall mainly on low-income workers, children, and the elderly, then that should also raise questions about the fairness of the restrictions.