Thursday, January 13, 2005

Reframing Shop: Compensation Caps

Here is a rewrite of an earlier editorial length article I wrote on the subject of 'tort reform.' In the prior version (use the Google box to search the site for 'tort' if you want to see that version), I stayed within the framing of those seeking to limit the liability of doctors and insurers. By challenging the frame, I think the argument becomes more powerful. The facts don't struggle against the frame, they support it. Rhetorical figures become more powerful and invested with clearer values. Excercies like these prove the worth of Lakoff's toobox.

The medical malpractice (med-mal) insurance industry, some politicians, and even some misguided doctors, have of late been misleading the public about the efficacy of caps on med-mal awards, a.k.a. ‘tort reform,’ to contain healthcare costs. These people have generated a deluge of coordinated letters to editor and public relations events in Arizona recently. They are telling the public that med-mal awards are driving the high inflation rates in the health care sector we’ve seen over the past several years. But the truth is that their so-called ‘tort reform’ is just a free ride for insurers and incompetent doctors on the backs of seriously injured patients.

‘Tort Reform’ is really nothing more than arbitrary compensation caps protecting doctors who harm or kill their patients and the companies who insure them. Policy makers actually interested in reforming the torts process would advocate for ways to remove non-meritorious claims from the system, not for placing a strict limit on the compensation a jury can award to victims of malpractice. The cost of caring for a child paralyzed or otherwise disabled for a lifetime by malpractice can run into the millions, yet these so-called ‘reformers’ want to cap all awards at a low level, regardless of the facts of the case. That’s not justice, that’s risk management, and it’s not what our court system is based upon. Why is a legislator, who may be getting campaign contributions from the insurance industry, better qualified to put a price on a lifetime of pain than a fellow citizen who is disinterested but knows the facts of the case?

Exploiting consumers’ understandable concern about the affordability of healthcare, compensation cap advocates mislead the public into supporting the curtailment of their own right to full compensation for all damages due to malpractice. But it is high rates of inflation in healthcare costs generally that cause inflation of med-mal premiums, not the other way around; prescribing compensation caps to contain healthcare costs is like trying to make the tail wag the dog.

Although premiums for med-mal insurance have risen sharply in the past few years, this increase is not due to an ‘explosion’ in settlements and jury awarded compensation to victims of medical malpractice. In fact, the increase in med-mal payments conforms closely to the overall rate of medical inflation.

Increasing premiums are actually the product of the current poor investment environment. Because med-mal insurance companies depend on financial investments for the bulk of their profits, premiums for med-mal insurance have historically risen sharply in response to economic downturns. When interest rates and the equity markets are down, insurers increase premiums to preserve industry profitability. Current calls for compensation caps are reminiscent of those heard during prior recessions.

Nor do Med-mal torts constitute a significant share of healthcare costs. Even with recent inflation, the average doctor’s premiums are less than 4% of his revenues, and malpractice claims amount to only 1/2 of 1% of total healthcare costs. The average claim is a modest $140,000, and the average settlement is just under $30,000. Less than 5% of awards top one million dollars (and about 3/4 of those are reduced by the courts to an average of $250,000). These averages are already well below most suggested compensation cap limits.

Few injuries even make it into the court system. Only 1 in 8 injuries due to malpractice are ever filed, and more than 3/4 of filed claims are dismissed. The existing legal system, and peoples' natural reluctance to sue doctors, winnows out the vast majority of claims already. We can do a better job of ensuring that frivolous suits do not go forward by vetting cases independently before they are filed, and having higher standards for med-mal lawyers. But arbitrary compensation caps will not eliminate nuisance suits; they will only harm the victims of malpractice.

Some claim that the savings realized by elimination of incentives for physicians to practice ‘defensive medicine’ justify compensation caps. But the non-partisan Congressional Budget Office has found no statistically significant difference in per capita healthcare spending between states with and without limits on malpractice awards. Defensive medicine costs are illusory.

To reduce the number and expense of med-mal claims, the most sensible approach is to improve the quality of healthcare, not to arbitrarily limit the payments to people who have suffered terrible injuries. Properly compensating victims according to objective juries’ awards isn’t causing a crisis in malpractice insurance; the ultimate cause is the breakdown of self-regulation in the medical profession.

It is a very small number of incompetent doctors who cause the public a disproportionate amount of the suffering and expense malpractice causes. Fewer than 5% of doctors are responsible for more than 50% of all med-mal claims, but, of the roughly 5,000 doctors nationally who have paid four or more med-mal awards, fewer than 15% have ever been disciplined by their state boards. Physicians need to more stringently police their own, and force med-mal insurers to rate doctors by their experience and track record, so that good doctors aren’t in the same risk pool with incompetents who are regularly harming their patients, as is now the case.

Compensation caps are not a workable solution to the problems of our health care system. Several states already have caps on non-economic damages in med-mal cases, including Texas, California, Florida, Missouri, and Nevada. Given that some of our most populous states have caps, one would think that this might have some effect on med-mal premiums nationally or at least within those states, but states with caps have continued to see their premiums go up, even as compensation to victims has gone down.

Successful health care cost containment will come from comprehensive reform in how we deliver health care services, not compensation caps. Nations who deliver health care more universally, use more preventive care, and who reduce the administrative costs through a national insurance system, realize per capita savings of 25% or more compared to our system. Compensation cap advocates cannot credibly claim anything even approaching such a significant savings. If we are going to decide to place the burden of cost containment so heavily on the shoulders of those maimed and crippled by malpractice, shouldn’t we at least be able to demonstrate savings greater than those available by any other means?

Reforms are certainly needed where high med-mal premiums are driving some physicians out of vital, high-risk specialties, such as surgery or obstetrics, but compensation caps don’t address the real problems of these specialized market segments. Government reinsurance assistance, carefully considered legislative reform of physician liability in problem specialties, expert pre-litigation review boards, and other creative, targeted approaches will produce real, and fair, results. Compensation caps are a cure far worse than the disease they are purported to cure; doctors call such nostrums snake oil.

Compensation caps are nothing but a means of helping insurance companies cushion their business cycles, not a means of containing the run-away costs of our health care system. Compensation caps are more pork for big insurance at the expense of severely injured victims.


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